Economy is stagnating
IfW sees hardly any growth – politics causes uncertainty
March 6, 2024, 11:15 a.m
According to the IfW, the German economy is stalling this year. The fact that things aren’t going any further down is thanks almost entirely to private consumption. Foreign trade, on the other hand, will decline again. Politics bears a significant share of the blame.
According to the latest forecast from the Kiel Institute for the World Economy (IfW), Germany’s path out of the economic slump will be extended. Only after the spring will there be any signs of a moderate recovery, the institute explained. Economic output is likely to shrink in the winter half of the year and will barely stagnate over the year as a whole, with an increase of 0.1 percent. According to its own information, the IfW has thus significantly revised its expectations from the winter forecast downwards by 0.8 percentage points. The IfW left its forecast unchanged for 2025 and sees economic output growing at 1.2 percent.
“A whole range of factors are currently weighing on sentiment and economic data in the German economy. The export economy is suffering from a weakening global economy, the European Central Bank’s monetary policy is restrictive and is likely to continue to do so into the coming year, and the federal government is making savings efforts at an inopportune time and radiate additional pessimism,” said IfW President Moritz Schularick.
There are increasing signs that structural problems are weighing heavily on the economy, added IfW economics chief Stefan Kooths. “Private investments remain the weak point, also because economic policy is fueling a lot of uncertainty.” In addition, the IfW now estimates that corporate investment activity is significantly weaker.
Private consumption is driving the upswing
The upswing will be largely driven by a gradual recovery in private consumption and a gradual increase in foreign business. However, the respective buoyant forces – increasing mass purchasing power at home thanks to high wage agreements with a falling inflation rate and increasing foreign demand – were weaker or began later than previously expected. For the current year, the IfW expects inflation to be 2.3 percent, and a further decline to 1.7 percent is expected for 2025.
The labor market appears to be robust given the weak economic momentum; the unemployment rate is expected to be 5.8 percent in 2024 and 5.6 percent in 2025. The number of people in employment reached a record 46.1 million this year before setting off on a downward trend as a result of demographic change.
After five quarters of decline, exports are gradually increasing again from spring. Due to the weak winter half-year, exports will fall on average this year by another significant 1.7 percent, according to the forecast, and an increase of 2.8 percent is expected for 2025. The less dynamic but generally stable global economy is once again being supported somewhat more by industrial production. This means that world trade will overcome its weak phase and support German industry through more orders.