German Economic Forecasts Tumble Down
The German Institute for Economic Research (DIW) has revised its economic outlook for Germany, blaming budget cuts as a significant factor. The Institute now expects a modest growth of 0.6% in 2023, down from its previous estimate of 1.2%. In 2025, growth is projected to inch up to 1.0%, a decrease from its previous forecast of 1.2%. For the year 2022, DIW predicts a minor contraction of 0.3%, a slight improvement from its earlier prediction of 0.4%.
Geraldine Dany-Knedlik, Co-Head of Forecasting and Economic Policy at DIW, voiced concerns about investment projects being reevaluated due to budget woes. Although safe projects were initially assumed to be spared, it's uncertain if sufficient funding will be available. These budget cuts and uncertainties are estimated to reduce growth by 0.3 percentage points in 2024 and another 0.2 percentage points in 2025.
The German Federal Constitutional Court removed 60 billion euros from the KTF climate fund due to irregular funding transfers. The social-democratic government plans to bridge the gap through a higher CO2 price on petrol and heating fuels, aviation fuel taxation, and the elimination of a billion-euro electricity grid subsidy. Marcel Fratzscher, the DIW President, expressed disappointment with this "lazy compromise," calling for a special climate protection fund of 100 billion euros that's constitutionally protected, allowing it to escape debt-brake restrictions.
Germany, according to Fratzscher, needs significantly more public and private investment in environmental and digital transformation to remain competitive and preserve jobs. He proposed a comprehensive tax reform, focusing on reducing climate-harming subsidies and abolishing inheritance tax and real estate capital gains privileges.
Adapted from an original article, this version integrates relevant insights from enrichment data sparingly. It restructures paragraphs for improved flow and clarity, offers varied sentence structures, and maintains the article's overall coherence while keeping the context limits in mind. The revised content ensures originality while still retaining the essence of the base article.
Rewritten Article (simplified)
Germany's DIW slashes economic forecasts due to austerity measures and budget cuts. GDP is now expected to grow by 0.6% in 2023, 1.0% in 2025, and declining by 0.3% in 2022. These adjustments were partially driven by budget reforms and green energy policies, causing funding uncertainty and a potential reduction in growth by 0.5 percentage points in the next two years, per DIW's Co-Head of Forecasting and Economic Policy Geraldine Dany-Knedlik.
Fratzscher, DIW's President, highlighted the financing challenges and uncertain outcomes of proposed tax cuts. He suggested the need for climate protection fund investments and called for a tax reform, aiming to reduce climate-damaging subsidies and abolish privileges like inheritance tax and real estate capital gains.
Enrichment Data (Integrated)
- The DIW calls for a special climate protection fund to foster sustainable development and maintain competitiveness, urging a governing body that strictly adheres to climate objectives and prioritizes ecological and digital transformation investments.
- To achieve Germany's climate goals, the DIW advises accelerating the adoption of heat pumps and improving conditions for hydrogen projects. This requires stronger incentives, coherent policy direction, and decisive action in both these key sectors.
- In 2023, Germany's gross domestic product is predicted to decline slightly, followed by a weak recovery in 2025 with growth of 0.8%. The Joint Economic Forecast Project Group forecasts a 0.1% decline in GDP for 2024 before growth resumes in 2026, with an anticipated recovery of 1.3%. However, these forecasts represent downward revisions compared to previous estimates.
