2024-05-09 00:23:49
Only one area is currently sending positive signals to the German economy. Experts warn that this is not enough for a real upswing – and say what urgently needs to be done.
Despite the good start to the new year, the IW researchers estimate that the German economy will not go beyond stagnation in 2024. The gross domestic product (GDP) will only remain at the level of last year, according to the new economic forecast from the German Economic Institute (IW), which was available to the Reuters news agency on Wednesday. Company surveys signaled weak economic development.
“Industry and the construction sector in particular remain stuck in the recession,” explained the Cologne economists. Positive impulses only come from consumption. “That’s not enough for a real upswing. In addition to consumption, investments must finally get going,” said IW economic expert Michael Grömling. “Huge gaps have now developed here.”
“If nothing changes, we will waste our potential”
The German economy shrank by 0.2 percent last year. At the end of 2023 it even fell by 0.5 percent, until the GDP increased by 0.2 percent at the beginning of 2024 and Germany narrowly avoided a recession. Many experts expect only a sluggish recovery for the current year; the federal government is targeting 0.3 percent growth.
With inflation ebbing to an estimated two and a quarter percent in 2024, consumers are likely to increase their spending by around one percent, according to IW. Slight positive impulses can also be expected from government consumption. “In contrast, investment activity is slowing down the pace of growth significantly this year too.” What is needed is a supply policy boost that improves the location conditions,” emphasized Grömling. “If nothing changes, we will continue to squander our potential.”
The economic policy of the traffic light coalition is required here. “It is entirely plausible that many things will change for the better and that this will herald a faster and, above all, stronger recovery on a global level and in Germany,” write the IW experts. However, this essentially depends on political developments in many countries.
Sober situation in construction and the real estate industry
According to estimates, foreign trade remains weak and hardly provides any economic stimulus. Exports and imports are therefore likely to fall by one percent each. “Despite the record number of 46 million employed people on average in 2024, the effects of the economic weakness on the labor market in Germany are becoming more visible.” The unemployment rate is likely to increase to almost six percent on average for the year. According to IW, the national deficit amounts to 68 billion euros or around 1.5 percent of economic output.
According to the IW, the situation in construction and the real estate industry looks sober. Construction investments are also expected to fall in 2024 – by two percent. The industry continues to suffer from the challenging market environment and uncertainties resulting from interest rate developments and inflation. “Numerous companies in project development continue to face a difficult situation and many of them are still at risk of insolvency.” Given persistently low demand and further order cancellations, this critical situation is unlikely to improve during 2024.