IFO economist: "Global economy is stronger than expected"
The economic situation in Germany is puzzling: In their annual report, the economic experts warn of a permanent slump in growth . IFO economist Timo Wollmershäuser, on the other hand, believes that recession scenarios are exaggerated. However, he agrees with the Council of Economic Experts on some points.
According to the German Council of Economic Experts, Germany is heading into a recession and will remain economically weak in 2024. In its annual report for the federal government presented on Wednesday, the German Council of Economic Experts expects gross domestic product (GDP) to fall by 0.4 percent in 2023. This forecast is in line with the government's prediction. "The economic recovery in Germany is being delayed," say the top economists.
Timo Wollmershäuser, Head of "Economic Research and Forecasts" at the Munich-based IFO Institute, takes a slightly different view: "I am currently much more optimistic for next year." He does not share the Council of Economic Experts' justification of a weak global economy.
"The global economy has indeed weakened this year, but surprisingly less than expected." In the USA, for example, a full-blown recession was expected for a long time. This has not materialized. "I think this danger is off the table. Inflation rates are falling quite sharply and quickly worldwide. We will probably see the first interest rate cuts again in the spring of next year."
Habeck expects higher growth than the Council
Federal Economics Minister Robert Habeck is also more optimistic about the coming year than the Council of Economic Experts: The Green politician anticipates GDP growth of 1.3 percent, while the Council only expects an increase of 0.7 percent.
According to the Council's forecast, the cost of living in Germany is likely to rise by 2.6 percent in 2024, following an estimated inflation rate of 6.1 percent in the current year. According to the annual report, private consumer spending will recover by the end of 2024 as real incomes rise again: "However, the unexpectedly sluggish recovery of the global economy, especially China's, is likely to continue and also put the brakes on German exports in 2024."
In the medium and long term, the German Council of Economic Experts expects "significant obstacles to growth". These obstacles have been looming for many years and have not yet been sufficiently addressed. "Firstly, it is foreseeable that demographic ageing will cause the proportion of 20 to 64-year-olds in the total population to fall and the volume of domestic labor to decline," the report states.
Immigration as a solution
"This is likely to make itself felt in the second half of the decade," agrees IFO expert Wollmershäuser. "I expect growth rates of around half a percent. Then demographic change will hit hard." The reason for this is that the working population will shrink massively. "One percent growth would then be quite a boom." The solution to this could be higher immigration. With normal migration, the economic experts' forecast is entirely realistic.
The economists are also calling for a long-term reform of the statutory pension scheme (GRV). The experts envisage a dynamization of the retirement age based on the foreseeable increase in life expectancy. The core elements of the reform should be the "linking of the statutory retirement age to longer life expectancy, combined with a new form of supplementary, funded pension provision". The experts did not give a specific figure in the report.
According to the current rules, the age limit for the standard old-age pension without deductions will be gradually raised to 67 by 2031. Federal Minister of Labor Hubertus Heil (SPD) has spoken out against a further increase. In his view, this would be at the expense of the younger generation, who will retire after the baby boomers.
- Despite the concerns raised by the German Council of Economic Experts about a permanent slump in growth, Ifo economist Timo Wollmershäuser believes that their recession scenarios are overstated, especially considering the stronger-than-expected global economy as stated by another economist.
- In its autumn report, the Ifo Institute acknowledges demographic change as one of the significant obstacles to future economic growth, suggesting that higher immigration could potentially mitigate the negative effects of decreasing labor volume due to an aging population.
- In their assessment of Germany's economic situation, both the German Council of Economic Experts and the Ifo Institute agree on the need for long-term pension scheme reform, emphasizing the need to link the retirement age to increasing life expectancy and implementing a new form of supplementary, funded pension provision.
Source: www.ntv.de
