economy recession
Ifo Institute lowers economic forecast – economic downturn of 0.4 percent expected
Status: 21.06.2023 | Reading time: 3 minutes
Ifo economic chief Wollmershäuser on negative forecast
In its summer forecast, the Ifo Institute expects German economic output to decline by 0.4 percent. In spring, the researchers had predicted a minus of 0.1 percent. Dietmar Deffner asked Ifo economic chief Timo Wollmershäuser in the WELT-Studio about the reasons for this.
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Germany’s economy is threatened with a greater recession this year than previously expected. The Munich Ifo Institute lowered the growth forecast to minus 0.4 percent. The economists are also dampening hopes of a recovery in 2024.
The Ifo Institute is more pessimistic about the German economy. Gross domestic product is likely to fall 0.4 percent more this year than the minus 0.1 percent predicted in spring, as the Munich researchers announced on Wednesday in their summer forecast.
At the same time, the growth forecast for the coming year was cut back from 1.7 to 1.5 percent. “The German economy is only slowly working its way out of the recession,” said Ifo economic chief Timo Wollmershäuser in Berlin. With an economic downturn in the last quarter of 2022 and the first quarter of 2023, Germany slipped into recession.
The inflation rate will slowly fall: from 6.9 percent in 2022 to 5.8 percent this year and then to 2.1 percent in 2024, the economists predict.
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The biggest brake in the current year is likely to be private consumption. Because of the high inflation, which sometimes means significant losses in purchasing power for many consumers, it is likely to fall by 1.7 percent. “It will only increase again in 2024, by 2.2 percent,” said Wollmershäuser. Because of the strong inflation, the European Central Bank (ECB) has raised its key interest rate eight times in a row to currently 4.0 percent.
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As a result, construction investments are likely to fall by 2.2 percent this year and by as much as 3.2 percent in 2024. “The increase in construction prices is slowing down and interest rates on loans will remain high, so that demand for construction services will continue to fall,” says the Ifo Institute. Thanks to the high order backlog, the manufacturing sector should continue to expand its production moderately. With the gradual elimination of the delivery bottlenecks, it should then expand much more strongly.
Despite low growth, economists expect a record number of people in employment
According to the forecast, the labor market is proving to be robust. The number of unemployed will rise by around 130,000 to 2.55 million this year, but will then fall again to 2.45 million in 2024. At the same time, the number of people in work is likely to increase sharply and reach a record level of 46.07 million in the coming year.
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Government borrowing should go down. While it was 106 billion euros last year, a deficit of 69 billion euros is expected for 2023 and 27 billion euros for 2024. In contrast, the German current account surplus with other countries is likely to almost double – from EUR 145 billion last year to EUR 269 billion next year. That corresponds to 6.3 percent of economic output. The threshold of 6.0 percent recommended by the EU would thus be exceeded.
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