As of: March 6, 2024, 4:11 p.m
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Containers at the port of Hamburg: According to Ifo boss Fuest, the German economy has structural problems.
© Christian Charisius / dpa
The Russian war against Ukraine and the resulting consequences severely damaged the German economy.
The head of the Munich Ifo Institute also sees deeper problems.
Berlin - After the recession in 2023, the German economy is unlikely to do much better this year.
Leading research institutes significantly lowered their economic forecasts on Wednesday and only expect mini-growth.
Ifo President Clemens Fuest blamed the traffic light government for this.
“We clearly have structural problems,” said the top economist in Berlin.
There is a lack of a joint response from the coalition of SPD, Greens and FDP.
The economy called for tax relief in order to get out of the slump.
“The German economy is paralyzed,” says the Ifo Institute.
The mood is bad and uncertainty is high.
The Ifo economists and the experts from the Kiel Institute for the World Economy (IfW) now each assume that the gross domestic product (GDP) will shrink for the second quarter in a row at the beginning of 2024 and that Germany will therefore slip into a recession.
Things are only likely to get noticeably better from the middle of the year.
Government advisors actually expect stagnation for the year as a whole.
The Ifo lowered its GDP forecast from 0.7 to 0.2 percent, the Kiel experts even cut their estimate from 0.9 to 0.1 percent.
Fuest: “We should do a lot more”
Fuest accused the traffic light government of not having a strategy to restart the economic engine.
“There is no convincing concept.” There are just different ideas within the coalition.
Economic policy is therefore a risk factor for the economic forecast.
The debt brake, which the SPD and the Greens would like to loosen, is not a brake on growth.
It allows more debt, especially in times of crisis - and special funds are also possible.
Other states would be better off than Germany under similar international conditions.
There are no attractive investment conditions in housing construction and industry in Germany.
The planned Growth Opportunities Act - additional depreciation options for companies - is correct, but with a relief volume of a good three billion euros, it is too small.
“We would have to do a lot more.” A tax reform is just as necessary as a reduction in excessive bureaucracy.
The industry association BDI expressed similar criticism, expecting growth of 0.3 percent this year.
“There is no improvement in sight.” The longer consumers' reluctance lasts, the longer the lull lasts.
That is why tax relief is important for more investment.
“The goal must be an internationally competitive tax burden on companies of a maximum of 25 percent.” The CSU financial politician Sebastian Brehm called for an end to the “ongoing traffic light dispute”.
Job market defies economic downturn
Ifo economics chief Timo Wollmershäuser attributed the economic weakness to weak consumption, high interest rates and price increases, the government's austerity measures and the sluggish global economy.
However, there are signs of a slight improvement in the next few months.
“With the pressure on interest rates and prices gradually disappearing and the effects of higher purchasing power for consumers, economic performance will accelerate in the middle of the year.”
For 2025, the Ifo Institute increased its forecast by 0.2 points to 1.5 percent, while the experts from Kiel continue to expect growth of 1.2 percent.
The labor market should continue to be robust.
According to Ifo, the number of employees will even climb from 45.9 to 46.1 million and reach a record level of 46.2 million next year.
Inflation is approaching target value
According to Ifo, consumer prices are only expected to increase by 2.3 percent in 2024, after 5.9 percent in the previous year.
Next year it should be 1.6 percent.
The European Central Bank (ECB) aims for two percent as the optimal value for the economy.
According to the IfW forecast, the persistently high shortage of skilled workers will lead to significantly rising wages, also in response to the high inflation in recent years.
With inflation expected to subside, “real disposable incomes will rise again in the current year for the first time in three years and stimulate private consumption.”
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With the updated estimate, the Ifo is at the level of the government forecast for 2024, the IfW slightly below.
Federal Economics Minister Robert Habeck recently lowered the traffic light estimate from 1.3 to 0.2 percent growth.
At the end of 2023, GDP had fallen by 0.3 percent and, according to many experts, is likely to fall in the current first quarter as well.
According to a rule of thumb used by experts, Germany would be in a technical, i.e. temporary, recession.
(Reuters, lf)