German institutes cut 2024 economic growth forecasts
The skyline with the banking district is seen during sunset in Frankfurt, Germany, February 27, 2024. REUTERS/Kai Pfaffenbach/File Photo
By Maria Martinez
BERLIN (Reuters) -Two German forecasting institutes cut their 2024 growth forecasts on Wednesday in the latest blow to the euro zone’s largest economy.
The Ifo institute reduced its forecast to 0.2%, from its previous projection of 0.7% in January, citing weak consumption and high interest rates. The IfW Kiel Institute lowered its forecast to 0.1% from 0.9% previously.
“The economy is paralysed,” Ifo’s head of forecasts Timo Wollmershaeuser said at a presentation. “If you look at surveys of companies and households, you realise that the mood is poor and uncertainty is high.”
“Consumer restraint, high interest rates and price increases, the government’s austerity measures and the weak global economy are currently dampening the economy in Germany and leading to another winter recession.”
The German economy shrank by 0.3% in the final three months of 2023 and it is expected to contract again in the first quarter, according to Wollmershaeuser. Two consecutive quarters of falling output are defined as a technical recession.
Ifo president Clemens Fuest said Germany was suffering from a combination of cyclical and structural problems, explaining its weaker performance than many other European countries.
Structural problems include a lack of competitiveness in the housing sector and in industry, with the latter hit by low investment, he said.
With the gradual easing of interest rates and inflation, economic output should accelerate towards the middle of the year, Wollmershaeuser said.
Inflation is expected to fall to 2.3% this year from 5.9% last year, and drop to 1.6% in 2025.
For 2025, Ifo raised its growth estimate by 0.2 percentage points to 1.5%.
Exports are forecast to fall 1.5% this year, but should increase by 3.4% next year.
A second Donald Trump presidency in the United States would not be a major risk for exports, Fuest added.
“If we think back to the last Trump administration, he imposed tariffs, but how did the foreign trade deficit change during this time? Zero,” he said.
Despite the economic downturn, Ifo forecast the number of people in employment would rise to 46.1 million this year from 45.9 million in 2023, and reach a record 46.2 million next year.
The unemployment rate is expected to rise to 5.9% in 2024 from 5.7% last year, before falling to 5.6% in 2025.
“The shortage of workers continues constraining production,” Wollmershaeuser said.
The public deficit is expected to fall from 87.4 billion euros ($95 billion) in 2023 to 76 billion euros this year, and drop to 44.6 billion euros in 2025. Those figures represent 2.1%, 1.8%, and 1.0% of economic output respectively.
($1 = 0.9195 euros)
