Forecasts slashed
IMK and banks: Economy will not catch up with setback in 2024
September 26, 2023, 4:35 p.m
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According to experts, the recovery of the economy will continue to be postponed. The IMK and the banks now expect only slight growth next year. Interest rate policy and weak foreign demand are putting too much pressure on companies. After all, the job market should remain stable.
First recession, then slump: The trade union-affiliated Institute for Macroeconomics and Business Cycle Research (IMK) and the banking association BdB only expect the German economy to achieve minimal growth in the coming year. According to the IMK, the gross domestic product will grow by 0.7 percent. It is not only more pessimistic than in the spring, but also more cautious than the other leading institutes: the Munich IFO, for example, expects growth to be twice as strong. The Federal Association of German Banks (BdB) is even more skeptical: it only expects a plus of 0.3 percent. That would not be enough to make up for the expected decline this year. For this year, IMK and BdB each expect a decline in economic output of 0.5 percent.
“The German economy, which has been weakened by the energy price shocks, will not really get going in the coming months because high interest rates and a subdued global economy are slowing things down,” IMK scientific director Sebastian Dullien explained the pessimistic view. “The autumn will be difficult. The economy is only likely to gradually gain momentum again over the course of the coming year,” said BdB General Manager Heiner Herkenhoff.
The chief economist at Berenberg Bank, Holger Schmieding, described the current situation in Germany and the euro zone as stagflation. This left companies and consumers in the grip of a stagnating economy and high inflation. Next year, however, this phase will be exited again thanks to falling annual inflation and a growing economy. Especially in the second half of 2024, economic growth will return to normal in Germany thanks to the better global economy, said Schmieding, who is currently chairman of the BdB Committee for Economic and Monetary Policy.
“Don’t expect a wave of layoffs”
With falling inflation and stronger wage increases, private consumption is likely to pick up from the end of the third quarter. “But this positive development comes so late that it can only slightly alleviate the recession in 2023 as a whole, not prevent it,” said the IMK. This is not leaving its mark on the labor market. The unemployment rate will rise to an average of 5.7 percent this year. This corresponds to around 2.6 million people without a job – around 190,000 more than in 2022. The rate is expected to rise again to 5.9 percent in 2024. Schmieding said: “We are not expecting a wave of layoffs.” Even with more headwinds due to the shortage of skilled workers, companies would hold on to their employees more strongly than in the past.
However, the IMK predicts that inflation will ease. This year the inflation rate is expected to average 6.0 percent. In 2024, at 2.4 percent, it should be relatively close to the European Central Bank’s (ECB) inflation target of two percent. The banking association then expects 3.0 percent. “That is still too high,” said Herkenhoff.