2024-03-27 12:10:05
Leading economic research institutes have significantly lowered their economic forecasts. On Wednesday in Berlin you spoke of “headwinds” for the German economy from both at home and abroad.
The leading institutes only expect the German economy to achieve minimal growth this year, but are predicting an upswing for 2025. The gross domestic product (GDP) is expected to increase by only 0.1 percent in 2024, according to the joint diagnosis for the federal government published on Wednesday. An increase of 1.3 percent was still expected in the fall. For the coming year, the institutes reduced their forecast from 1.5 to 1.4 percent. However, economic output would then be over 30 billion euros lower as a result of the delayed recovery. Last year, Europe’s largest economy shrank by 0.3 percent.
“The economy in Germany is ailing,” says the diagnostic paper. “Although a recovery is likely to begin in the spring, the overall momentum is unlikely to be too great.” Economic performance is currently at a level that is barely higher than before the pandemic. Productivity has stalled.
Real wages are likely to rise
“Recently, there have been more headwinds than tailwinds both externally and domestically,” say the researchers. Continuing uncertainty about economic policy is putting a strain on companies’ investments, which are likely to remain at the 2017 level despite the expected recovery in the coming year. The head of the Kiel Institute for the World Economy, Stefan Kooths, spoke of a “triad of sluggish economic activity, paralyzing politics and suffering growth”.
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The institutes have positive news for employees. Their real wages are likely to increase both this year and next, which in turn makes private consumption the “most important driving force for the economy”. However: “The level at the end of 2021 – i.e. before the drastic surge in inflation – will probably not be reached until the second quarter of 2025,” it said in a restrictive statement about real wages.
Inflation should decline
In addition to strong wage increases, purchasing power is also likely to be strengthened by falling inflation. This year the inflation rate is expected to fall to 2.3 percent, then to 1.8 percent in 2025. In 2023 it was still 5.9 percent. The European Central Bank (ECB) is aiming for a value of two percent in the monetary union. Unemployment is expected to rise slightly this year given the economic downturn: a rate of 5.8 percent is expected, but this is expected to fall to 5.5 percent next year. The number of employed people is expected to be at a record level of more than 46 million.
The joint diagnosis serves the federal government as a basis for its own projections, which in turn form the basis for the tax estimate. So far, the Federal Ministry of Economics is assuming a GDP increase of 0.2 percent in the current year. The joint diagnosis is prepared by the RWI in Essen, the Ifo Institute in Munich, the IfW in Kiel, the IWH in Halle and the Berlin DIW.