Economic Outlook: Stagnant German Economy Until 2025 According to HWWI
The Hamburg Institute of International Economics (HWWI) painted a gloomy picture of Germany's economic future, predicting a protracted period of stagnation until 2025. The institute slightly revised its end-of-year forecast, now expecting a 0.3% decline in GDP, as they announced on Monday.
The institute cited savings in the state budget following the Federal Constitutional Court ruling, which could slow down the recovery in the upcoming year. This revision led to a reduction in the 2024 growth forecast by half a percentage point, now at 0.5%. However, a modest 1% increase is expected in 2025, assuming no additional setbacks.
In terms of inflation, HWWI anticipates a gradual improvement, with inflation approaching the 2% mark again by the end of 2025. Despite a major drop from the beginning of the year (over 8% to 3.2% recently), HWWI highlights the potential impact of rising labor costs on further disinflation. The anticipated average annual inflation for 2024 is around 2.75%.
However, all predictions are contingent on the Middle East conflict and other geopolitical crises not escalating further. The institute warns of a potential global economic crisis if tensions intensify, especially considering the current weak global economy.
Global Economic Trends
The World Economic Institute, an independent, non-profit global organization, provides a broader perspective on global economic trends. In 2025, the Institute anticipates a modest growth momentum for the global economy with a real GDP growth rate of 3.1%.
Advanced economies like the US and Europe are expected to grow at 1.8% and 1.3%, respectively, in 2025. Emerging markets, led by mainland China, are projected to grow at 4.1%, while India is expected to maintain strong growth at 6.4%.
Inflation is projected to decline steadily from 4.5% in 2024 to 3.5% in 2025. Central banks will tread cautiously due to supply shocks and inflationary pressures, leading to monetary policy desynchronization in 2025.
Implications for Germany
Germany, a major trade powerhouse, faces unique challenges. Its export-oriented economy struggles with external demand and potential protectionist measures, like tariffs. The Bundesbank's latest Monthly Report illustrates a 0.1% decline in German economic output in the last quarter of 2024, with a slow recovery in Q1 2025 unlikely.
The German industry is also experiencing weakness, and a significant gap exists between its exports and sales growth since the start of 2020. This, coupled with weakness in investment, contributes to the German economy's stagnation.
Final Thoughts
The sobering predictions from the HWWI, along with the broader trends highlighted by the World Economic Institute, suggest a protracted period of economic struggle for both Germany and the global economy. Addressing these challenges requires careful consideration and innovative policies to navigate an uncertain future.
Sources:
[1] [2] Bundesbank Monthly Report, December 2024, p. 7-8 [3] EY Global Forecast, 2025 [4] German Watch Annual Report, 2024 [5] Bundesbank Mid-Year Report, 2024, p. 12
