Because autumn will depress Germany’s economy
What the Ifo and Ifw forecasts say about Germany's economic growth in the autumn
Stagnation or recession. In the vocabulary of the German crisis there is only the embarrassment of choosing the right term to describe a curve that does not rise and the embarrassment of economists who have to adjust economic forecasts downwards as the months pass. In two days, two of Germany's main think tanks made their autumn adjustments, lowering the bar of expectations, which were not too exciting in themselves, but which nevertheless indicated a faint hope of recovery in the months to come. Now the recovery moves away and the calm envelops everything.
Today it was the turn of the Ifo in Munich to present the updated growth forecasts for the current year, lowering the previous estimates by +0.4% to a solid zero. Flat calm in Berlin and surrounding areas. For this reason and also for next year, when according to Bavarian economists, instead of the expected jump to +1.5% we will have to settle for a more modest +0.9. Only in 2026 will the +1.5% threshold be reached.
“The German economy is stuck and languishing in depression, while other countries are feeling the recovery,” Ifo economic director Timo Wollmershäuser commented on the estimates. “We are experiencing a structural crisis. Investments are too scarce, especially in industry, and productivity has been stagnant for years", he added, "we also have an economic crisis, the order situation is negative and the increase in purchasing power does not lead to an increase of consumption, but rather to greater savings because people are restless".
The savings rate is now 11.3%, significantly higher than the 10-year average of 10.1% before the Covid pandemic. The Ifo sees at least a ray of hope in the forecasts for the inflation rate, which will continue to fall from the average of 5.9% last year to 2.2% this year. It will subsequently decline to 2.0% and then 1.9 in each of the next two years.
Although the crisis is also starting to attack the core of the industry, in terms of employment the Ifo does not foresee any catastrophes, apart from an increase in the number of jobless in this phase, something already highlighted by the statistical data of the last few months provided by the Federal Labor Agency. The unemployment rate – according to the Munich institute – will rise to 6.0% at the end of 2024, from 5.7% last year. But in 2025 it will drop again to 5.8 to finally reach 5.3%. This is also the effect of the shortage of manpower, especially qualified ones, a problem that worries German entrepreneurs.
Finally, the Ifo forecasts that this year the state budget deficit will reach 2.0% of economic output and in the next two years it will fall to 1.3 and 0.9% respectively.
In detail, a dark horizon for the construction sector, whose production is expected to reduce by 3.1%, and for industry, which is expected to decrease by 2.0%.
“Decarbonisation, digitalisation, demographic change, the coronavirus pandemic, the energy price shock and China's changing role in the global economy are putting pressure on established business models and forcing companies to adapt their production facilities ”, commented Wollmershäuser again. There is therefore a lack of investment, especially in industry, which represents a significantly higher share of economic output in Germany than in other countries. “And the population will age faster, fewer and fewer people will have jobs. The shift from the industrial sector to the services sector largely explains the slowdown in productivity recorded in recent years", he added, concluding the presentation of the estimates.
The forecasts issued the day before by the Institut für Weltwirtschaft (IfW) in Kiel were slightly more pessimistic, also revised downwards compared to the previous ones. Economists in Kiel estimate a contraction in GDP of 0.1%, instead of the expected growth of 0.2%. The downward correction is even more evident for 2025, when instead of the expected +1.1% we will have to settle for a more modest +0.5.
Even for the researchers of the institute which is based in the northernmost part of Germany, "the German economy is not moving, the signs of recovery have not consolidated in recent months and the industry is in recession". From south to north, from Munich to Kiel, the analysis is similar: "Private families have slowed down consumption despite the increase in real incomes, investments continue to suffer from the high level of uncertainty and restrictive financing conditions." The IfW expects stronger growth only in 2026, but at 1.1%.
If this happened – conclude the Kiel economists – it would be official: Germany is not yet able to emerge from stagnation. “Gross domestic product is currently only slightly above the level of the end of 2019. Due to the decline in growth potential due to demographic change, it will become increasingly difficult to compensate for the current lack of growth in the coming years. The lack of economic production will likely fuel distribution difficulties in the medium term."
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/economia-germania-stime-autunnali-ifo-ifw/ on Thu, 05 Sep 2024 11:51:20 +0000.