Professionals predict a brighter outlook for the economy.
Experts believe Germany is slowly coming out of its recession, as higher pay and lower inflation, along with a rebound in exports, could boost the economy. However, the Ministry of Economics warns of a rocky road ahead. Economic researchers highlight that there are still barriers to overcome.
The German economy, as per the experts, is slowly exiting the recession. Economic research institutions are more positive than in spring. Moritz Schularick, President of the IfW Kiel, remarked, "There's light at the end of the tunnel." Though a significant leap is not anticipated, the recovery will likely be supported by a more appealing export industry and a bounce-back in private consumption with better wages and lower inflation rates. In 2022, Europe's biggest economy slipped into a recession, experiencing a 0.2% decline in GDP.
The Federal Ministry of Economics indicates a bumpy road ahead for the recovery in Germany. They state in their monthly report that the initial signs of improvement in sentiment indicators in industry, construction, and services are only gradually reflecting in real data. For long-term economic recovery, not only a recovery of domestic demand is necessary but also visible incentives from the foreign trade sector, said Robert Habeck's team.
The IfW Kiel forecasts a 0.2% growth in economic production this year and a 1.1% growth in 2025. The inflation rate is expected to remain around 2%. The labor market is healthy. The RWI - Leibniz Institute for Economic Research in Essen is more hopeful, increasing their growth forecast for 2024 to 0.4%. The recovery should pick up speed, but uncertainties persist regarding how energy prices and economic policy will evolve, write the experts.
The vital turning point for the economic recovery, according to the IfW, was the European Central Bank's (ECB) decision in early June to reduce interest rates for the first time in years. This would improve "financing conditions for both companies and private consumers," explained the IfW.
The Instruction: Economists point to challenges for Germany's export-focused economy, such as a potential trade war. The EU Commission threatened provisional tariffs on Chinese electric cars. China could retaliate with increased tariffs. The auto industry would be most affected, along with European tariffs on vehicles made by German companies in China for the European market, said Oliver Holtemöller from the IWH. Under these circumstances, the prospects for increasing German exports are slim. The IWH predicts a 0.3% growth in GDP this year and unchanged growth of 1.5% next year.
The Institute for Macroeconomics and Business Cycle Research (IMK) of the Hans-Böckler Foundation foresees a "slightly accelerated recovery" starting mid-year. The IMK's business cycle indicator recorded a 39.5% recession probability most recently. In early May, the value for the next three months was still 45.6%. Export and private consumption are seen as vital factors for growth, added the IMK. The new economic forecast from the IMK will be revealed next week.
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- Despite the positive growth forecasts, challenges persist for Germany's export-focused economy, such as the potential threat of a trade war.
- The ECB's decision to reduce interest rates, made in early June, has been credited as a critical turning point for the economic recovery, improving financing conditions for both companies and consumers.
- The Hans Böckler Foundation's Institute for Macroeconomics and Business Cycle Research (IMK) predicts a "slightly accelerated recovery" in the second half of the year, with a focus on the vital role of export and private consumption in growth.
- According to the Kiel Institute for the World Economy, the economic recovery in Germany is expected to be supported by a more appealing export industry and a rebound in private consumption, driven by better wages and lower inflation rates.
- Despite the optimistic economic forecasts, the Federal Ministry of Economics warns that the road to recovery for Germany's economy remains bumpy, requiring not just a rebound in domestic demand but also visible incentives from the foreign trade sector.
- The European Central Bank (ECB) and the IfW Kiel both acknowledge the importance of foreign trade in driving Germany's economic growth, with the former reducing interest rates to improve financing conditions and the latter predicting that a recovery in the export industry will support economic production.
