Economic situation - Institutes lower 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 lower economic forecast for Germany in 2024 was released by the Ifo Institute, located in Munich.
- Timo Wollmershäuser, head of economic research at the Ifo Institute, discussed the economic situation in Berlin.
- Uncertainty around the federal budget is contributing to a decline in consumers' spending and companies' investment willingness.
- Wollmershäuser noted that despite these challenges, wages are rising strongly and employment is at an all-time high in Germany.
- Inflation is expected to decrease from around 6% in 2022 to around 2% in 2023, as purchasing power returns and economic demand increases.
- The DIW also lowered its economic forecast for Germany, expecting growth of 0.6% in 2023 and 1.0% in 2025.
- DIW President Marcel Fratzscher cited consumers' reluctance to spend as the main reason for this slower recovery.
- No stimulus is expected from the budget agreement, according to Fratzscher, as investment has been given a low priority.
- The German government's savings and cutbacks are anticipated to further depress growth by 0.3 percentage points in 2024.
- Household consumption remains weak, driven in part by high energy prices for gas and electricity, impacting consumers' spending power.
Source: www.stern.de
