Institute lowers forecasts as German economy faces challenges

The German economy is facing challenges, according to the Kiel Institute for the World Economy (IfW), a prominent economic research institute. Stefan Kooths from IfW cited “headwinds” both domestically and internationally, stating that the German economy is not performing as well as expected.

The institute has revised its economic forecast for Germany in the upcoming year, predicting a meager growth of only 0.1%. This is a significant decrease from their previous forecast of 1.3% growth in 2024. However, their forecast for next year remains relatively unchanged at 1.4%. In 2023, the German economy experienced a decline of 0.3%, with productivity stagnating.

Private consumption in Germany is not as robust as expected, and exports have declined despite a global economic upturn. The construction industry is also facing difficulties, with some signs of recovery expected in the spring but overall momentum being weak.

The IfW sees ongoing “political uncertainty” dampening companies’ investment activities. The German government’s challenges in finalizing a growth package, with differing opinions from Finance Minister Christian Lindner and Economy Minister Robert Habeck, are contributing to this uncertainty.

Concerns about the country’s economic outlook have been expressed by the German Chamber of Industry and Commerce, which cites high energy costs, a shortage of skilled labor, and geopolitical uncertainties affecting export business on top of already challenging conditions for businesses operating in Germany.

Despite these challenges, experts predict that inflation rates will decrease this year and next year after being high since mid-last year. Consumer prices are projected to rise by 2.3% this year and 1.8% next year.

In conclusion, while there may be some signs of recovery in the spring, the overall momentum for the German economy remains weak due to various factors such as political uncertainty and declining productivity and exports.

By Samantha Johnson

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