Slowly but surely, the German economy continues its path towards greater growth. The German economic institute Ifo has raised its economic growth forecast for the current year to 0.4%, up from 0.2% in its previous forecast, and is likely to accelerate to 1.5% next year.
“New hopes have just emerged,” comments Timo Wollmershäuser, director of economic situation studies at Ifo, in a statement issued this Thursday. “The German economy is gradually emerging from the crisis. The second half of 2024 should be significantly better than the first,” he indicated about the current summer forecast slightly higher than the 0.3% set by the German Government for 2024 in its last review, last spring. Germany closed 2023 with a 0.3% contraction of its gross domestic product (GDP).
At the same time, inflation will slow, going from 5.9% last year to 2.2% this year and only 1.7% next year. “As the year progresses, household purchasing power should continue to gain strength and the overall economic recovery should accelerate as the consumer economy normalizes,” says Wollmershäuser.
According to experts from the economic institute, world trade in goods and global industrial production should continue to recover, especially starting in the second half of the year. A gradual rebound in investment will also contribute to this, supported by the relaxation of monetary policy in industrialized countries. The Ifo institute foresees two new interest rate cuts by the European Central Bank (ECB) in the current year, after Frankfurt lowered its interest rate in June for the first time since 2019 from 4.50 to 4. 25%.
The Ifo also expects the number of people with jobs to increase from 45.9 to 46.1 million this year and even reach 46.2 million in 2025. According to forecasts, the number of unemployed will initially increase from 2.6 to 2.7 million, before falling again to 2.6 million. In addition, he pointed out that it is likely that the public deficit will decrease from 99 billion to 73 billion euros (1.7% of GDP) and that next year it will be reduced even further, to only 1.2% of GDP.
Germany’s current account surplus, criticized internationally, especially by the European Commission, would increase from 258,000 to 312,000 million in the current year and would reach 306,000 million in 2025. This would initially represent 7.3% and then 7.0% of economic production. Weakening domestic demand and lack of investment would contribute to high current account surpluses. These are mainly fueled by high export surpluses and are likely to continue rising this year and next. “Given the size of the German economy and its trade links with the euro zone, this has a negative impact on the rest of the euro zone,” Brussels recently declared, which also indicated that countries with high surpluses face others with enormous deficits that have to go into debt to cover them.
Ifo experts now see the future more positively and join the optimism of the DIW economic institute and the RWI, which also improved their forecasts for the current year last week. Specifically, the DIW pointed out that private consumption will guarantee the recovery of the German economy throughout the year and they raised their growth forecast to 0.3% from the 0.1% predicted at the end of March. Meanwhile, for next year they expect growth of 1.3%. For their part, economists at the RWI Institute now forecast that economic output will rise 0.4% this year. Previously, they had set an increase of 0.3%. “The German economy is slowly regaining momentum,” the RWI explained.
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