Traffic lights as an “economic brake”
IW predicts another year of recession
December 13, 2023, 9:46 a.m
According to the employer-related economic research institute IW Cologne, the budget chaos is having an impact on the country’s growth prospects. In contrast to other large economies, there will also be a recession next year.
The German Economic Institute (IW) expects another year of recession in 2024 due to the budget crisis. The gross domestic product is expected to shrink by 0.5 percent, as it did last year, according to the forecast from the employer-related institute.
The ongoing uncertainty surrounding the federal budget is pushing economic output down by half a percent because companies would postpone their investment decisions. With these poor prospects, Germany is alone among the large industrialized countries: the USA is expected to grow by around 1.25 percent, France by 0.75 percent.
“The poor conditions in world trade are not the only reason for the continued recession,” said IW director Michael Hüther. “The federal government played a decisive role in this crisis.” The traffic light coalition must therefore now demonstrate its ability to act in financial policy.
“Need a solution to financial chaos”
The German economy is absolutely dependent on investment impulses. “In the short term, a special fund, similar to that of the Bundeswehr, can provide relief,” said Hüther. “In the long term, a reform of the debt brake must be on the agenda.”
The IW researchers expect inflation to ease. According to this, consumer prices will rise next year, at an average of three percent, only half as much as in 2023. In return, they expect rising unemployment: the unemployment rate will rise to six percent, after around 5.75 percent in the end of the year.
“The federal government has proven to be a real brake on the economy this year,” said IW economic expert Michael Grömling. “We need a quick solution to the fiscal chaos.” Important investments should not be left behind.