Leading economic institutes currently see Germany on the verge of recession. The economists from the Ifo Institute and the IfW only expect the economy to grow for the year as a whole.
The economic research institutes are much more skeptical about the German economy. The gross domestic product (GDP) will only increase by a meager 0.2 percent in 2024 and will therefore grow even less than was expected in January (0.7 percent). This was announced by the ifo Institute. “The German economy is paralyzed.” “The mood is bad and uncertainty is high” among companies and households.
The Kiel Institute for the World Economy (IfW) also massively lowered its economic forecast and practically expects stagnation. GDP will only grow by 0.1 percent this year instead of the previously expected 0.9 percent, according to the estimate published today. The federal government also recently lowered its forecast for 2024 from 1.3 to 0.2 percent growth.
Winter recession expected
“An economic recovery is still a long time coming,” explained the IfW. “The early indicators signal that economic performance will do little more than stagnate in the first half of the year.” According to the latest forecast, an improvement will only appear after spring. Private consumption and exports recovered later or less dynamically, and investments were extremely weak.
A noticeable recovery is still a long way off, says ifo economics director Timo Wollmershäuser. “With the gradual removal of interest and price burdens and the effects of higher purchasing power for consumers,” economic performance will only accelerate in the middle of the year. In the current quarter, the Ifo Institute expects economic output to fall by 0.1 percent and Germany to slip into a technical recession.
Because at the end of 2023, GDP had already fallen by 0.3 percent. “Consumption restraint, high interest rates and price increases, the government’s austerity measures and the weak global economy are currently dampening the economy in Germany and are leading to another winter recession,” said Wollmershäuser.
labor market despite Economic downturn quite robust
For the coming year, the IfW economists are expecting growth of 1.2 percent, as before. “Overall, we assume that the gross domestic product in 2025 will only be a meager two percent above the level from 2019.
The ifo, on the other hand, increased its growth estimate for 2025 by 0.2 points to 1.5 percent. The experts see good news on the labor market. Despite the economic downturn, the number of employees will rise from 45.9 to 46.1 million and reach a record level of 46.2 million next year.
According to ifo, the number of unemployed only increases from a good 2.6 to 2.7 million and will fall again below 2.6 million next year. The unemployment rate is expected to rise from 5.7 percent to 5.9 percent in 2023, but then fall to 5.6 percent in 2025.
Experts see the inflation rate at 2.3 percent
“Employment is likely to increase again this year before it begins a downward trend as a result of demographic change,” explained the experts from the IfW. The persistently high shortage of skilled workers will also lead to significantly rising wages in response to the high inflation in recent years.
Since average consumer prices are only expected to rise by 2.3 percent in 2024 and by 1.7 percent next year, “real disposable incomes will rise again in the current year for the first time in three years and stimulate private consumption.” The ifo also predicts an increase in consumer prices of 2.3 percent. Next year, the inflation rate will even fall to 1.6 percent, which is below the European Central Bank’s (ECB) two percent target.
When it comes to corporate investments, however, the weak economic environment is clearly noticeable, the IfW continues. According to estimates, exports are also expected to decline noticeably by 1.7 percent in the current year before they move onto a moderate expansion course as world trade gradually revives. The disrupted shipping traffic in the Red Sea as a result of the war in the Middle East is likely to have only briefly affected German foreign trade.