Economic growth returns in 2024

Economic growth returns in 2024

Das keel Institute for World Economy (IfW Kiel) is more optimistic about the German economy this year than just a few months ago. The institute expects gross domestic product (GDP) to increase by 0.5 percent this year, after having assumed 0.3 percent in mid-December. For the coming year, the researchers expect an increase of 1.4 percent.

The economic prospects have recently “brightened up a little” and the German economy is “struggling to get out of the energy crisis,” it said. Nevertheless, the upward momentum remains “subdued”. “The recently significant decline in gas prices initially stimulated the economy in this country only slightly,” explained IfW Economic Director Stefan Kooths. Above all, they relieved the state budget, which now had to step in with fewer subsidies as part of the energy price brakes.

In addition, inflation will remain high. The IfW Kiel is expecting inflation of 5.4 percent this year, and it could be two percent next year. “Resolute countermeasures in monetary policy” are therefore important, Kooths demanded.

Ifo expects 1.7 percent growth in 2024

The Munich Ifo Institute However, he stuck to his slightly more pessimistic view and expects the German economy to largely stagnate this year (minus 0.1 percent). The Institute assumes that the economy in the consumer-related sectors will “suffer and shrink” in view of the high inflation, but that industrial activity will support growth. The experts at the Leibniz Institute for Economic Research in Halle (IWH) also expect the economy in Germany to be weak in 2023. According to the institute’s spring forecast published on Tuesday, gross domestic product will only increase by around 0.4 percent.

For 2024, the Ifo Institute is again assuming growth of 1.7 percent. The institute has thus slightly increased its economic forecast for Germany in the coming year by 0.1 percentage points compared to its forecast in December, as announced in Berlin on Wednesday. And according to Munich economic researchers, the inflation rate will then normalize again at 2.2 percent. Expectations regarding the budget gap have also improved.

Real wages still falling in 2023

“Following a further decline in gross domestic product by 0.2 percent in the first quarter, the economy will recover over time,” said Ifo economic researcher Timo Wollmershäuser. “From the middle of the year at the latest, rising real wages will support the domestic economy.” Overall, however, he still expects real wages to fall for 2023 as a whole.

Ultimately, “we are all” losers in the crisis, said Wollmershäuser. Without them, Germany would be in a much better position today. Ifo President Clemens Fuest also commented in this direction. Prosperity is significantly lower than in 2019, he said.

In addition to noticeable collective wage increases, gradually falling inflation rates should also contribute to the trend reversal over the course of the year. “Inflation has peaked,” said Wollmershäuser. On average this year, he expects an inflation rate of 6.2 percent. This is minimally less than the December forecast. Wollmershäuser said he does not expect any further surges in inflation from energy prices in the coming months. At the end of the year, the fall in energy costs will also reach households and will even push down inflation next year.

Optimism about the state budget

The Ifo is more optimistic about the state budget than three months ago. It will be in the red in the current and next year with 1.3 and 0.3 percent of economic output, respectively. In December, the Munich forecast was still 2.6 and 1.2 percent deficit. Among other things, the economic researchers now expect expenditure on government energy price brakes to be reduced by 35 billion euros due to lower prices.

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