By Peter Bergman (MoneyAmped.com)
On Wednesday, two German prediction organizations lowered their growth projections for the year 2024, dealing yet another blow to the largest economy in the euro zone.
Due to sluggish consumption and elevated interest rates, the Ifo Institute revised its prediction down to 0.2%, a decrease from its earlier estimate of 0.7% in January. After initially predicting that it would be 0.9%, the IfW Kiel Institute has now reduced its forecast to 0.1%, a significant decrease.
Germany’s Economy Is Stagnant, and Sentiment Is Pessimistic
Timo Wollmershaeuser gave a presentation in which he stated that the economy is currently stagnating. When surveys from individuals and businesses are analyzed, it becomes clear that the general sentiment is pessimistic, and there is a significant amount of unpredictability in the results.
“The German economy is currently being affected by consumer caution, elevated interest rates, rising prices, government austerity measures, and the sluggish global economy, resulting in another downturn this winter.”
The German economy contracted 0.3% in the final quarter of 2023, and according to Wollmershaeuser, it is anticipated that it will contract again in the first quarter. In economics, a technical recession is defined as two consecutive quarters in which production has decreased.
It was mentioned by Clemens Fuest, the president of Ifo, that Germany is experiencing a combination of cyclical and structural problems, which is the reason why its economic performance is behind that of a significant number of other European countries.
According to him, the structure’s problems include a lack of competitiveness in the housing industry and the industry as a whole, which is affected by a lack of investment.
According to Wollmershaeuser, it is anticipated that the rate of economic growth will pick up by the middle of the year as interest rates and inflation gradually decrease.
It is anticipated that inflation will decrease to 2.3% this year, down from 5.9% the previous year, and will continue to decrease until it reaches 1.6% in 2025.
Ifo raised its growth projection to 1.5% in 2025, an increase of 0.2 percentage points.
Exports are anticipated to decrease by 1.5% this year and increase by 3.4% in the following year.
According to Fuest, the possibility of Donald Trump serving another term in the White House would not constitute a significant threat to the export industry.
The imposition of tariffs took place during the administration of the previous president, Donald Trump. What effect did this have on the deficit in international trade? “None,” he said in response.
The Shortage of Workers Has a Significant Impact
Ifo forecasts that the number of people working will rise to 46.1 million this year, up from 45.9 million in 2023, and then reach a new high of 46.2 million the following year, despite the economy being in a downward recession.
According to recent predictions, the unemployment rate is expected to rise to 5.9% in 2024, up from 5.7% in the previous year, and then fall to 5.6% in 2025.
Wollmershaeuser says that the constant lack of workers is one of the things that keeps production from going smoothly.
According to projections, the public deficit will decrease from 87.4 billion euros ($95 billion) in 2023 to 76 billion euros this year and then continue to decrease until it reaches 44.6 billion euros by the year 2025. Each of these figures represents a two percent, eight percent, and one percent portion of the overall economic output, respectively.
