The German economy will remain lackluster. Ifo reports
What the Ifo estimates say about Germany's economy for 2023 and 2024: stagnation, then a gradual recovery. The article by Pierluigi Mennitti from Berlin
Stagnation, then a gradual recovery that will materialize more in the next year. This is where the needle of German economic growth stops, according to the spring estimates of the Ifo, provided today in Berlin. Two and a half years of pandemic, then Russia's war in Ukraine, two imponderable factors that accelerated the reshuffling of international balances already underway since the middle of the last decade, which effectively dismantled the ideal framework in which the German economy was grown since the mid-2000s.
HOW GERMANY WILL FIND THIS YEAR, ACCORDING TO IFO
The economic forecasts of the Ifo embrace the two-year period 2023-2024 and give the measure of the heavy step with which the entire production system of the first European economy is reacting to the consequences of the conflict that has opened in the East, a few steps from home, and which forced Berlin to remodel the most important engine of the production system: the energy supply.
According to experts from the Munich institute, this year's economic output in Germany will remain more or less at the same level as the previous year (-0.1%). While the economy of consumer-related sectors will suffer from high inflation and shrink, it will be the industrial economy that will sustain growth. A restart that should materialize in 2024, when according to the Ifo the economy should return to growth in a more sustained way, recording a +1.7%.
THE RECOVERY FROM MID-2023
Specifically, "after a further 0.2% drop in GDP in the first quarter of 2023, the current one, the economy will gradually recover and, starting from the middle of the year at the latest, the increase in real wages it will support the national economy,” says Timo Wollmershäuser, economics researcher at the Ifo and responsible for economic forecasts. At the moment various tug-of-wars are underway at the negotiating tables between unions and employers, especially in the public sector and in the transport sector, with strikes which, while not reaching the level of conflict in France, cause disruption in the daily life of the citizens and in some cases slow down productivity.
A major national transport strike is being mooted for the end of the month, while regional forms of struggle are blocking various German airports in turn, with air traffic jammed. To avert the general strike at the end of March, negotiations have become tighter and a new proposal to be evaluated now lies on the union table.
THE PROBLEM OF WAGES
The increase in wages, in times of inflation, worries some economists for the spiral it can trigger, but at the same time it should have a positive effect on the spending power of workers, helping the recovery from mid-year. Tanbto more than inflation shows signs of abating in Germany (and in Europe).
This is the assessment of the Ifo researchers, according to whom the gradual decline in inflation rates will also contribute to growth, in addition to the collectively agreed considerable wage increases. “The peak of inflation has been reached”, Wollmershäuser said again, “on average, in 2023, the rate should already be lower than last year, equal to 6.2%. In 2024 rates will normalize and inflation will reach 2.2%”. Falling energy prices and the gradual resolution of supply problems in industry are the reasons for this result.
IFO APPLAUDS SCHOLZ FOR LNG PLAN
From this point of view, the analysts of the Ifo had positively assessed the efforts of the government of Olaf Scholz on the LNG side, appreciating the construction plan of the regasification terminals along the coasts of the North Sea and the Baltic Sea, both for the quantity of foreseen systems and for the speed of execution of the works. Three have already entered into operation, the others are proceeding according to the agreed times: despite the image of efficiency that Germany manages to convey abroad, this is not exactly a foregone conclusion.
THE JOB MARKET SLOWS DOWN
This year's economic weakness will slow down the recovery of the labor market somewhat, so far a strength of the German system even in the crisis phase during the pandemic. But, the Bavarian researchers note, the increase in the number of unemployed by almost 50,000 people is mainly due to Ukrainian citizens who fled the war and bombings. This is a phenomenon judged to be temporary, because Ukrainians will gradually be integrated into the labor market over the two-year period covered by the Ifo estimates. The unemployment rate is therefore expected to fall again to 5.1% next year, after reaching 5.4% this year and 5.3% last year. However, these are very low numbers, and on the other hand Germany, even more than other economies, rather suffers from a shortage of skilled and unskilled manpower. As all economists say in unison, work will no longer be a problem in the coming years. If anything, it will be to be able to match offers and requests.
THE CONSEQUENCES OF PUBLIC EXPENDITURE
Finally, the reflections of the enormous public expenditure activated in the last three years to react to the double shock already mentioned (pandemic plus war).
The Ifo has no doubts, the national budget will remain in the red both this year and next, at 1.3% and 0.3% of economic performance respectively. However, the government's financial deficit is significantly lower than expected in December. In particular, the budgeted expenditure for government curbs on energy prices have been reduced by as much as 35 billion euros because, in the current perspective, the purchase prices of electricity and gas in the forecast period are lower than expected. The current account balance will rise again to 5.9% of economic performance by 2024, after temporarily declining to 3.8% last year due to sharp increases in import prices.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/ifo-stime-economia-germania-2023-2024/ on Wed, 15 Mar 2023 09:47:33 +0000.