According to the latest economic forecasts, the German economy will fall by 0.6 percent this year, much more than previously assumed.
High inflation, a weak global economy, rising interest rates: the main institutes have significantly reduced their economic forecasts for Germany, taking into account the difficult environment. Instead of the previously expected growth in Gross Domestic Product (GDP) of 0.3 percent, a drop of 0.6 percent is now expected for the current year, as can be seen in the German government’s joint diagnosis published in Thursday.
“The most important reason for this is that industry and private consumption are recovering more slowly than we expected in the spring”, explained the vice-president of the Halle Institute for Economic Research (IWH), Oliver Holtemöller. Growth is expected again in 2024, but at 1.3% it will be weaker than the 1.5% assumed in the spring. By 2025 there should be an increase of 1.5 percent.
“Economic fragility has now reached the job market”, write the institutes. However, taking into account the “notorious and, in the future, worsening of staff shortages in many areas”, they expect only a “moderate increase” to 2.6 million people this year – which would be around 174 thousand more than in 2022.” Next year, the unemployment number will likely fall slightly,” according to the forecast. By 2025, it is expected to fall further, to less than 2.5 million.
The institutes bring good news for consumers. “The situation on the price front is gradually improving”, states the joint diagnosis, entitled “Purchasing power is returning – political uncertainty is high”. The inflation rate is expected to be 6.1 percent this year, but will fall significantly to 2.6 percent in 2024 and again to 1.9 percent in 2025. “Wages have now responded to inflation, so the power of Workers’ purchases will increase again,” economists predict. “This stabilizes private consumption.”
Difficult times are expected for the construction industry. “The construction industry finds itself increasingly in difficult waters.” Due to rising financing costs, investments in residential construction, for example, are expected to “decrease significantly next year”. For now, no major upward leaps are expected in the export business. “The economic recession in important sales markets, such as the euro area and China, where there is particularly less demand for consumer and intermediate goods, is slowing down exports”, emphasize the institutes. “In addition, high energy costs, especially in the chemical industry, as well as the growing shortage of qualified workers are also putting pressure on German export companies.” adjusted to prices and then grow 1.8% in 2024.
The joint diagnosis is prepared by the RWI in Essen, the Ifo Institute in Munich, the Kiel IfW, the IWH in Halle and the Berlin DIW, which is involved again after restructuring its internal economic research. (APA/dpa)