Economic situation - Institute lowers economic forecast for 2024
The Ifo Institute has lowered its forecast for the German economy. After a decline of 0.3 percent in the current year, the Munich-based economists believe that gross domestic product will probably only grow by 0.9 percent in 2024 instead of the previously expected 1.4 percent.
The development in the current quarter is weaker than expected and "this will also have an impact in the coming year", said Ifo head of economic research Timo Wollmershäuser in Berlin.
Uncertainty delays recovery
Consumers are saving and companies' willingness to invest is declining, said the Ifo economic researcher. The uncertainties surrounding the federal budget were contributing to this. With a cut of 20 billion euros, the economy would only grow by 0.7 percent.
Yet the course is basically set for recovery: Wages are rising strongly and employment is higher than ever before, said Wollmershäuser. Inflation is slowing down, with inflation likely to fall from around six percent this year to a good two percent next year. Interest rates have passed their peak. Purchasing power is returning and overall economic demand should pick up again. The Ifo Institute expects economic growth of 1.3 percent in 2025.
In terms of unemployment, the economic researchers expect an increase of 191,000 people this year and a further 82,000 next year. The unemployment rate would then rise to 5.9 percent. The number of people in employment is likely to increase by 353,000 this year and by 83,000 next year.
No impetus from traffic light agreement according to DIW
The German Institute for Economic Research (DIW) expects the German economy to recover much more slowly than initially expected in the next two years due to consumers' reluctance to spend. The DIW is now forecasting economic growth of 0.6 percent for the coming year and 1.0 percent for 2025. "This forecast takes into account the fact that the German government will make savings for the next two years and will not carry out all the spending it has promised or announced," said the institute in Berlin.
At the beginning of September, the DIW was still assuming growth of 1.2 percent in each of the next two years. Recently, however, "private consumption as an economic driver has largely failed to materialize, contrary to original expectations". In the face of uncertain times, consumers initially replenished depleted financial reserves instead of spending the money directly.
The DIW is also not expecting any stimulus from the agreement in the budget dispute. "A clear priority has been set against investment. This is likely to slow down economic development in the long term and jeopardize Germany's competitiveness," said DIW President Marcel Fratzscher.
The budget decision has already been taken into account in the DIW forecast. DIW expert Geraldine Dany-Knedlik said that the actual agreement reached by the federal government was very close to the Institute's expectations. According to DIW, the cuts and the uncertainty they have triggered are likely to depress growth by 0.3 percentage points in 2024.
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- The Ifo Institute for Economic Research, headed by Timo Wollmershäuser, cited Electricity costs as one of the factors affecting the economic situation in Germany.
- In light of the lower economic forecast for 2024, the Federal Government is expected to closely monitor the Labor market trends.
- The Ifo Institute's research indicates that the Household savings rate is increasing due to uncertainties surrounding the German budget.
- According to Timo Wollmershäuser, the DIW's forecast for slower economic growth is partly due to consumers' reluctance to spend on Energy costs.
- The Ifo Institute's forecast also includes expectations for a decrease in Prices and Inflation rates in the coming years.
- The Federal Government's decision to cut spending by 20 billion euros could potentially impact Germany's Economic growth, as suggested by Timo Wollmershäuser of the Ifo Institute.
- The DIW, another influential Economic research organization, believes that the German economy's recovery will be slower than initially expected due to the impact of Gas prices on Consumers' spending habits.
- Timo Wollmershäuser of the Ifo Institute believes that despite the challenges, Germany's Economic situation will see a rebound, boosted by increasing Employment and wage growth.
- The Ifo Institute's forecast for 2025 includes a prediction of a 1.3 percent Economic growth rate, assuming a gradual return of Purchasing power and overall demand.
- The agreement in the budget dispute is not expected to provide an immediate impetus to the German economy, according to the DIW, as it prioritizes savings over investment, potentially long-term impact on Germany's Competitiveness.
Source: www.stern.de
