Leading German economic institutes have significantly reduced their economic growth forecast for Germany in 2023. They now predict a contraction of 0.6 percent, which is a downward revision of 0.9 percentage points from their previous projection in the spring. However, they still expect the country’s economy to recover next year, albeit at a slower pace. The institutes now anticipate a GDP growth rate of 1.3 percent in 2024, compared to their previous forecast of 1.5 percent.
The joint forecast was prepared by several prestigious institutions including the German Institute for Economic Research (DIW Berlin), the ifo Institute for Economic Research, the Kiel Institute for the World Economy (IfW Kiel), the Halle Institute for Economic Research (IWH), and the RWI – Leibniz Institute for Economic Research, in cooperation with the Institute for Advanced Studies Vienna.
In their statement, the institutes noted that although price increases have led to wage hikes and reduced energy prices, exporters have partially passed on their increased costs. As a result, purchasing power is gradually returning to the economy. They also mentioned that the inflation rate in Germany is expected to remain high at 6.1 percent in 2023 but will normalize to 2.6 percent in 2024.
The European Central Bank (ECB) has responded to inflation concerns by raising its key interest rates. The rates on main refinancing operations, marginal lending facility, and the deposit facility have been increased to 4.5 percent, 4.75 percent, and 4 percent respectively.
The institutes added that the global economy is also expected to have moderate growth this winter. They believe that the weakness in the industrial sector will persist, and high interest rates will dampen overall economic demand. However, major central banks are projected to lower their key interest rates in the upcoming year, which should help stimulate investment activity, particularly in housing construction.
In line with these revised forecasts, the German Macroeconomic Policy Institute (IMK) recently downgraded its growth forecast for Germany in 2024. They now expect the economy to recover sluggishly, with a growth rate of only 0.7 percent as opposed to their previous projection of 1.2 percent.
Credit: The Star : News Feed
