IInternationally, the German economy is already lagging behind. In July, the International Monetary Fund (IMF) forecast that Germany’s gross domestic product will be the only large industrialized country to shrink this year. Now it is clear: Even this bad news was still too positive. The IMF had predicted that economic output would shrink by 0.3 percent this year. Leading German research institutes are now expecting an even sharper decline. “Overall, gross domestic product is likely to fall by 0.5 percent this year,” said the Kiel Institute for the World Economy (IfW) on Wednesday.
Overall, the scope for macroeconomic expansion is not all that great. “The German economy is stuttering through 2023,” said Kiel economics chief Stefan Kooths on request. According to FAZ information, the Leibniz Institute for Economic Research in Halle (IWH) will also lower its annual forecast to minus 0.5 percent. “We see from all sides that there are negative factors,” said IWH economics chief Oliver Holtemöller.
In its autumn forecast, which is to be published on Thursday, the RWI-Leibniz Institute for Economic Research in Essen even expects GDP to fall by 0.6 percent. The three institutes are involved in the so-called joint forecast, which will be published at the end of September. In the spring, the institutes had predicted growth of 0.3 percent.
Especially construction industry under pressure
There are several reasons for the further deterioration of the economic situation. The mood in industry has recently deteriorated further. The construction industry in particular is complaining about a lack of orders. The situation in this industry is worse “than it has been for two decades,” said Holtemöller. The hoped-for boost from private consumption has not materialized so far. The high inflation had depressed the disposable income of the Germans and spoiled their desire to spend money. Economic researchers had assumed that rising negotiated wages and inflation premiums would reverse the trend in the second half of the year and that retail and service providers would benefit from this.
So far, however, this effect has been a long time coming. In the current third quarter, gross domestic product will shrink by 0.3 percent compared to the previous quarter, the Kiel institute expects. At the beginning of the year, the German economy slipped into recession, and economic output stagnated in the second quarter. Only at the end of the year and in the next year does the trend point slightly upwards again.
No impetus from foreign trade
Numbers on incoming orders published on Wednesday show how volatile the situation is. After two significant increases in a row, incoming orders in German industry fell by 11.7 percent in July compared to the previous month, according to the Federal Statistical Office. “These movements are primarily due to a different number of large orders. If you factor these out, orders even increased slightly in July, and this core figure has hardly changed in the past four months,” analyzed Commerzbank. However, it is certainly too early to speak of a sustained stabilization of orders.
The export nation Germany cannot expect any impetus from foreign trade. “63 percent of our companies see a downward or even sharp downward trend for German foreign trade in 2023. According to our most recent survey, just over every twentieth company still expects better development. These are alarming values,” said Dirk Jandura, President of the Foreign Trade Association BGA on Wednesday. The reasons are manifold: “A weak economy in China, Asia, South America and an even weaker government policy in Germany.” The location is currently not competitive enough in various areas. “And it’s not our policy either,” Jandura summed up.
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