DThe OECD is dampening its growth prospects for the German economy. While in June it had forecast an increase of 1.2 percent for the coming year, it now only expects 0.9 percent – the same as for Russia. It forecasts an increase of 1.1 percent for the Eurozone, 1.3 percent for the USA and 2.7 percent for the global economy. The industrialized countries organization announced this on Tuesday in its new economic outlook. It is therefore even more pessimistic for Germany than the Munich Ifo Institute and the EU Commission, which also recently revised their forecasts downwards but still expect growth of at least 1.4 and 1.1 percent for the coming year.
OECD chief economist Clare Lombardelli, who took office in May, does not want to be seen as a pessimist. Yes, this year is difficult for the German economy. But despite the forecast correction, the signs point to recovery in 2024. There are many reasons for this. “The main reason is that inflation will fall again and real incomes will rise,” said Lombardelli in an interview with the FAZ. Private investments continued. For this year, the OECD expects a decline in German economic output of “only” 0.2 percent, while the Ifo Institute and the EU Commission expect a decline that is twice as large.
“There are structural problems for the German economy, like for many other economies,” Lombardelli replied to the objection that the current weak growth is hardly just of a cyclical nature. Of course, the transition to more climate protection means that business models will have to be adjusted. “Restructuring” is necessary and concerns are understandable.
“But there are also some pretty big strengths in Germany that we could build on,” emphasizes the British woman with Italian roots on her father’s side, who studied at the London School of Economics and Oxford, was most recently a senior economic advisor in the British Ministry of Finance and at the OECD followed Laurence Boone, who moved to the French government. Strengths included a highly skilled workforce and strong capital investment. There is no reason why Germany should not be one of the “big winners”.
“A power shift in favor of workers”
However, Lombardelli calls for more long-term thinking. It is understandable to be concerned about jobs and to call for protective subsidies for industry. However, the latter delays necessary adjustments and investments. “I don’t think this will work in the long term,” said the OECD chief economist about subsidies for industry such as reduced electricity prices. She complained that many of the debates going on at the moment remain stuck in the here and now. It is important that politicians in Europe think about long-term trends. We need to examine more closely whether the industry is prepared for the world of tomorrow.
The economist also calls for political efforts to reduce the high national debt and in social policy. “We welcome the kind of pension reform that the French are carrying out,” said Lombardelli, referring to the increase in the retirement age from 62 to 64 and the contribution period for full benefits. Lombardelli called demographics “a really big, important challenge that is currently weighing on all economies, including Germany.” One of the answers to this must be to extend people’s working lives. It is simply “unsustainable” if the retirement age remains the same and more and more people over working age are dependent on the working age population. Such reforms also send a signal to foreign investors.
Lombardelli does not yet have a clear opinion on the four-day week, which is increasingly common not only in Germany but also in her home country of Great Britain and is causing debate. It is too early to assess the impact on productivity, although some studies suggest an increase. What is certain is that the labor markets are very tight, people with certain skills are in high demand and people have changed their attitude to work. Therefore, at the moment there is “a discrepancy between what people want and the jobs available” and we are seeing “a shift in power in favor of workers”, who can dictate the conditions a little more. But it would surprise you if the four-day week became the rule in the future, said Lombardelli. They don’t yet exist in the OECD.
Lombardelli combines the economic outlook presented on Tuesday under the heading “Combating inflation and low growth” with a clear appeal for global trade. There is a need to “think smartly about how to respond to the very legitimate safety concerns” and make supply chains more resilient through more diversification, she said. It must be clear: global trade is an important source of long-term prosperity, and the dismantling of trade restrictions promotes productivity and growth. People would see and feel these benefits.
#OECD #forecast #Germany #grow #fast #Russia