Decline of 0.2 percent
Habeck lowers economic forecast – and proposes measures
Updated on October 9, 2024 – 2:30 p.mReading time: 3 min.
The federal government is concerned about the development of the economy. According to their forecast, economic output will decline this year.
The federal government expects economic output to decline by 0.2 percent in 2024. This means that it is correcting its forecast for the development of the gross domestic product significantly downwards, as Economics Minister Robert Habeck said in Berlin. In the spring, the federal government had assumed a slight increase in gross domestic product of 0.3 percent.
The correction does not come as a surprise, as the major economic research institutes had also recently revised their expectations downwards. They expect a minus of 0.1 percent.
The main reason is the uncertainty among companies and citizens. The persistently high level of interest rates is slowing down investments, companies are cautious due to the unstable economic and geopolitical situation, and private households are increasingly saving their income instead of investing in home ownership or consumption.
The federal government is a little more optimistic than before for the coming year: it expects an increase of 1.1 percent. On the one hand, she hopes that private consumption will pick up again and more industrial products will be bought abroad. Then German companies would be able to invest more again.
On the other hand, the federal government is relying on its growth package with tax relief, work incentives and electricity price reductions. “If they are implemented, and completely, then the economy will grow faster and more people will get jobs again,” emphasized Habeck. “That’s why the measures of the growth initiative must now be implemented decisively by everyone.” The federal states also have to make their contribution. The federal government fears that the states will block a number of measures in the Bundesrat because this would mean they would collect less taxes.
Leading economic research institutes have recently expressed skepticism as to whether the package can provide the necessary impetus. Many measures have not yet been implemented.
Habeck also admits that more is needed to get Germany back on the growth path. Finance Minister Christian Lindner recently made similar statements. Habeck is now proposing additional measures: a significant reduction in network fees and a reduction in bureaucracy, for example in data protection. “The standard should be: only what is perceived as relief in practice counts,” said Habeck.
The federal government’s economic forecast is also a basis for the upcoming next tax estimate. Lower tax revenues than previously predicted and higher spending on social security could put a strain on the traffic light coalition’s budget negotiations. At the same time, however, lower growth prospects mean that higher borrowing is possible due to the debt brake mechanism.
In view of the gloomy economic outlook, the German economy is demanding a relief from the federal government. “There have only been two years of recession in a row in Germany so far. That was in 2002 and 2003, during the last structural crisis,” said Martin Wansleben, General Manager of the German Chamber of Commerce and Industry (DIHK), on Wednesday in Berlin. “In fact, economic performance has been standing still for five years.” The gross domestic product is just half a percentage point above the value before the corona pandemic. “Investments have not even reached 2019 levels.”
The government must therefore take powerful countermeasures. “The growth initiative can only be the start here.” It includes 49 individual measures to improve the location, for example greater depreciation options and more work incentives. “Further comprehensive reform packages are necessary to ensure that investments take off.”
The Association of Family Businesses expressed a similar opinion. Corporate taxes would have to be reduced, energy policy would have to be reorganized and social security reforms would have to be reformed. “No other industrial nation is stuck in recession; this decline is of our own making,” said association President Marie-Christine Ostermann. The balance sheet of Economics Minister Robert Habeck (Greens) is largely disastrous. He should not remain silent about the “explosion of additional wage costs”, i.e. rising contribution rates in long-term care insurance and for the pension system.