Persistent Crisis
Kiel IfW lowers forecast for Germany
09/06/2023 2:22 p.m
listen to the article
This audio version was artificially generated. More Info | send feedback
Turnaround in interest rates, weak exports, unfavorable global economic climate: Germany remains in crisis mode. This week, several economic institutes are correcting their forecasts downwards – such as the IfW in Kiel. Economists now expect GDP to fall by 0.5 percent.
In the current year, the German economy is likely to shrink even more than initially expected. The Kiel Institute for the World Economy – short IfW – lowered its forecast for the development of gross domestic product from minus 0.3 to minus 0.5 percent compared to the previous year. The reasons are weak industrial activity, the crisis in the construction industry and falling consumer spending. For the coming year, the IfW expects an increase of 1.3 percent – that is also a lower estimate than the 1.8 percent previously. In 2025, Germany’s economy should grow by 1.5 percent, according to estimates.
“Germany is now also feeling the effects that its old industrial business model is no longer working,” explained IfW boss Moritz Schularick. “In addition, the turnaround in interest rates is having a negative impact on the domestic economy and on the export markets.” In addition to China, other important industrialized countries such as South Korea also weakened. The still high order backlog is having a positive effect on German companies.
Overall, Germany has to adjust to the fact that parts of the energy-intensive production are no longer profitable and “probably won’t be again,” the IfW explained. Despite the downturn, the labor market is proving to be robust because the shortage of skilled workers is still great. The level of public debt also remains roughly constant.
Inflation is weakening
Inflation is likely to fall significantly and amount to 2.1 percent in the next two years, the IfW explained in its current forecast. “The core rate adjusted for energy prices should still be well over two percent in 2024 and 2025, since services in particular are only lagging behind the general surge in prices,” the experts added.
The Kiel institute expects private consumption to fall by 0.6 percent in the current year. Due to noticeable wage increases and state aid, a strong increase of two percent can already be expected in the coming year.
According to information from the “Frankfurter Allgemeine Zeitung”, two other leading economic institutes are also adjusting their forecasts downwards. “We see from all sides that there are negative factors,” said Oliver Holtemöller from the Institute for Economic Research in Halle (IWH) of the newspaper. The IWH is now also assuming an economic downturn of 0.5 percent, the RWI-Leibniz Institute for Economic Research in Essen even by 0.6 percent. Both institutes and the IFO Institute want to present their updated forecasts on Thursday.