The Economics Research Institute (Ifo), one of Germany’s leading economic think tanks, revised its growth forecast for this year downwards due to the negative impact of high inflation on consumer spending.
Ifo, headquartered in Munich, updated its growth forecasts for the German economy covering 2023-2024, which it shared in March.
Ifo lowered its Gross Domestic Product (GDP) growth forecast for this year from minus 0.1 percent to minus 0.4 percent and its 2024 growth forecast to 1.5 percent from 1.7 percent.
Ifo expects inflation, which was 6.9 percent last year and 6.1 percent in May, to average 5.8 percent this year and to 2.1 percent in 2023.
In the Ifo report, which states that private consumption will decrease by 1.7 percent this year due to unusually high inflation, it is predicted that private consumption will increase by 2.2 percent in 2024.
The report predicted that the number of unemployed in the country will rise slightly from 2.42 million to 2.55 million this year compared to last year, and will fall again to 2.45 million next year.
It was stated that the unemployment rate will be 5.3 percent in 2023 and 5.5 percent in 2024.
It is also estimated that the number of people employed will increase from 45.57 million to 45.95 million this year and to 46.07 million in 2024. It is estimated that the number of people employed will increase from 45 million 572 thousand this year to 45 million 949 thousand, and next year to 46 million 70 thousand.
Ifo expects the German public sector’s budget deficit to decline from 106 billion euros last year to 68.9 billion euros this year and 27.2 billion euros next year. It is predicted that the current account surplus of the country, which was 145 billion euros last year, will rise to 232 billion euros this year. The said surplus is expected to reach 269 billion euros in 2024.
“The German economy is recovering very slowly from the effects of the recession,” said Timo Wollmershaeuser, Ifo Business Cycle Research and Economic Forecasting Manager. said.
The Institute for Macroeconomics and Business Cycle Studies (IMK), affiliated with the Hans Böckler Foundation, also predicted on Wednesday that the German economy will shrink by 0.5 percent this year, possibly failing to emerge from recession. It predicted 1.2 percent growth next year.
The economy is in recession.
The German economy had technically entered recession, shrinking by 0.3 percent in the first quarter of this year due to the impact of unusually high inflation and rising interest rates on consumer spending.
The economy contracted 0.5 percent in the last quarter of last year.
Although the bottlenecks that emerged during the Kovid-19 epidemic eased, the country’s economy is adversely affected by the stagnation in demand as a result of the rise in interest rates, the decrease in confidence in the economy and the decrease in the purchasing power of consumers in an unusually high inflation environment.
The German government expects 0.4 percent growth in the economy this year.