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Germany in a downturn: Institutes lower forecast

2023-09-28T14:11:49.955Z

Highlights: German economic researchers expect the German economy to shrink this year. Industry and private consumption have recovered more slowly than expected. The German government is also likely to lower its expectations. The economic weakness has now also arrived on the labour market. The federal government has "massively unsettled" companies and households. What is needed is a comprehensive and fast-acting fast-growth pact for growth and prosperity. For confidential support call the Samaritans on 08457 90 90 90, visit a local Samaritans branch or see www.samaritans.org.



Status: 28/09/2023, 15:51 p.m.

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Industry and private consumption are recovering more slowly than expected - economic researchers expect the German economy to shrink this year. © Waltraud Grubitzsch/dpa

The German economy is weakening. Economists are harshly criticizing the policy of the federal government - the traffic light coalition should stir up less uncertainty.

Berlin - Germany in a downturn: The leading economic research institutes have sharply lowered their economic forecast for this year. They expect gross domestic product to shrink by 0.6 percent. In the spring, the institutes had expected a mini-growth of 0.3 percent. An overview of the reasons for this - and why the economists criticize the policy of the federal government.

The economy is shrinking

The most important reason for the lowering of the forecast is that industry and private consumption have recovered more slowly than the institutes had expected in the spring, said Oliver Holtemöller of the Halle Institute for Economic Research in Berlin. According to the institutes' "Joint Economic Forecast", this has to do with the weak global economy, for example, which is putting a strain on export-oriented companies. In addition, production has declined in energy-intensive sectors of the economy such as the chemical industry - the economy has been calling for relief for some time due to the high electricity prices compared to other countries.

There has not yet been a significant recovery in private consumption, according to the institutes. It is true that an increase in wage dynamics supports the purchasing power of households. However, many people are still uncertain about what will happen next, also because of persistently high inflation, and are holding back on major investments.

On the price front, however, the situation is gradually easing up. According to the forecast, the inflation rate is expected to be 6.1 percent this year and fall to 2.6 percent next year. Inflation moderated in September. Consumer prices were 4.5 percent higher than in the same month last year, after 6.1 percent in August, according to the Federal Statistical Office.

For the coming year, the economic researchers lowered their growth forecast by 0.2 percentage points to 1.3 percent. There will be no high growth rates in the following years - the reason: Due to demographic developments, the number of people in employment is shrinking.

Federal Economics Minister Robert Habeck (Greens) will present a new economic forecast in mid-October. The German government is also likely to lower its expectations. In the spring, the federal government had expected an increase in gross domestic product of 0.4 percent. The autumn forecast is also the basis for the new tax estimate in November.

Stable situation on the labour market

According to the institutes, the economic weakness has now also arrived on the labour market. However, in view of the "notorious" staff shortages in many areas, which will continue to worsen in the future, the institutes expect unemployment to rise only moderately to 2.6 million people this year. In the next two years, the number of unemployed will probably fall slightly.

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Lesson for the Federal Government

The institutes criticize that the policy of the federal government has "massively unsettled" companies and households. This complicates economic planning and contributes to the fact that the economy does not find its way out of the downturn quickly. Torsten Schmidt of the RWI Institute Essen said that it was to be welcomed that the German government had courageously tackled climate policy. But: "From our point of view, the measures are the wrong ones." He referred to the long conflicts in the coalition over the heating law and spoke of a "small-scale" approach. "The uncertainty of the population in Germany is still very high and that of course dampens consumption and investment."

Even the "Growth Opportunities Act" planned by the coalition with billions in relief for companies will not have a major effect, the institutes say.

CDU economic politician Julia Klöckner called the economic situation in Germany worrying. What is needed is a comprehensive and fast-acting pact for growth and prosperity. Left Party parliamentary group leader Dietmar Bartsch spoke of a "traffic light crash". Bartsch said that the recession was the result of a disastrous policy of the federal government.

Institutes reject industrial electricity price

The coalition has been struggling for weeks to relieve companies of energy prices. The Greens and the SPD parliamentary group are in favour of a state-subsidised industrial electricity price, Chancellor Olaf Scholz (SPD) is skeptical, the FDP is against it.

The institutes reject an industrial electricity price. Stefan Kooths of the Kiel Institute for the World Economy said: "We have a shortage problem, which is expressed in the prices and that is not solved by dealing with new subsidies for parts of the consumers here."

Holtemöller said that it will probably continue to be the case in the foreseeable future that electricity from renewable energies can be produced cheaper elsewhere than in Germany. "In this respect, it will probably be unavoidable in the long run that certain energy-intensive productions will be relocated from Germany. But that's not the end of the world, because you can develop other activities accordingly." This structural change must be promoted, especially for the affected employees.

The institutes criticized that there is no coherent overall concept in energy policy. They recommend the abolition of the electricity tax and a simultaneous shortage of CO2 certificates - in order to provide incentives to save electricity. Dpa

Source: merkur

All news articles on 2023-09-28

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