April 13, 2024
World Economy

Ifo lowers German growth forecast for 2024 to marginal 0.2% increase

Germany’s ifo Institute has once again lowered its growth forecast for this year and now sees a minimal increase of 0.2% in gross domestic product (GDP).

In December the economic institute’s forecast showed a 0.9% rise which they lowered to a 0.7% increase in GDP in January.

“Consumer restraint, high interest rates and price hikes, the government’s austerity measures and the weak global economy are currently dampening the economy in Germany and leading to another winter recession,” said Timo Wollmershäuser, ifo’s head of forecasts, on Wednesday.

However, with falling interest rates, lower inflation and increasing purchasing power for consumers, economic output will accelerate towards the middle of the year, he said. The ifo Institute raised its growth forecast for the coming year by 0.2 points to 1.5%.

Prices are likely to rise by 2.3% this year and by just 1.6% next year, compared to 5.9% last year, ifo said.

Experts at the Kiel Institute for the World Economy (IfW) also believe that Germany’s path out of the economic slump will be prolonged.

According to the latest forecast released on Wednesday, there are no signs of a recovery until after the spring. Economic output is likely to shrink in the winter half-year and basically stagnate, with a 0.1% growth forecast for this year.

The new prediction is 0.8 percentage points lower than the institute’s previous prediction. Behind the meagre growth forecast is a delayed or less dynamic recovery in private consumption and exports and extremely weak investments.

The Kiel Institute is leaving its forecast for 2025 unchanged and sees an increase of 1.2% in GDP next year.

The inflation rate is likely to fall to below 2% and the government’s financing deficit to below 0.8%, it said.

Economy Minister Robert Habeck recently presented the annual economic report for 2024, which showed that government is also only expecting a marginal growth of 0.2% this year.

On the somewhat positive side, ifo researchers expect predominantly good news from the labour market. Despite the slump, the number of people in employment will rise from 45.9 million to 46.1 million and reach a record 46.2 million next year.

However, the number of unemployed will increase from 2.6 million to 2.7 million this year and the unemployment rate is seen as increasing from 5.7% to 5.9%, the Munich-based forecasters said.

Next year, however, the number of unemployed is expected to fall below 2.6 million, ifo said.

German exports are expected to fall by 1.5% in 2024, but will grow by 3.4% next year. The government deficit will fall from €87.4 billion ($95 billion) to €76 billion this year and €44.6 billion next year, ifo forecasters said.

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