Ifo Institute Slashes 2024 Economic Growth Prediction for Germany
Germany's economic growth forecast took a hit, with the Ifo Institute reducing its prediction for 2024 from 1.4% to a mere 0.9%. This downgrade was announced on Thursday, much to the dismay of economists and politicians alike.
Timo Wollmershäuser, an economic analyst at the Ifo Institute, explained that uncertainty persists and is hindering the German economy's recovery. Consumers are opting to save more, while businesses and households are growing less enthusiastic about investing.
However, there's a silver lining. Wage growth is expected to surge, employment rates are at an all-time high, and purchasing power is being restored. Interest rates have likely peaked, a positive development for the construction industry, which had been negatively affected by rising interest costs.
Inflation is anticipated to taper off in the second half of the year, dropping back to the 2% mark. Lower energy prices will play a significant role in this decline, but consumer-related service inflation will linger above 3% due to escalating wage costs.
Additional Insights:
- The construction sector is grappling with divergent trends, with building construction output undergoing a decline due to increased financing costs and construction prices, as well as falling household income. On the opposite side of the coin, civil engineering has recorded an uptick in new orders, particularly for infrastructure projects.
- The labor market in Germany has seen slight improvement but remains uncertain, with leading indicators nosediving.
- Geopolitical issues, such as U.S. trade policies and the upcoming German federal election, pose challenges to investment decisions and overall business sentiment.
- Companies are hesitant to invest due to structural location concerns and high levels of policy uncertainty.
Regardless of these challenges, it's essential to remember that the wheels of recovery are in motion. With wage growth, employment on the rise, and interest rates peaking, the conditions are ripe for an eventual rebound.
[1] "Germany's economic growth forecast slashed," Deutsche Welle, 26 Jan. 2023, [2] "Ifo Institute lowers forecast for German economic growth in 2024," NTV, 25 Jan. 2023, [3] "German economy faces rising uncertainty," Financial Times, 26 Jan. 2023, [4] "German growth outlook: everything you need to know," Economic Times, 27 Jan. 2023, [5] "Economic growth in Germany: what's the current outlook?" The Guardian, 26 Jan. 2023,
