Economic downturn predicted: Ifo lowers growth predictions due to increased unemployment - Increased joblessness and reduced economic expansion: Ifo lowers growth projection
The Ifo Institute, a renowned economic research organisation based in Munich, has released its latest forecast for the German economy, painting a picture of modest growth and persistent unemployment for the coming years.
According to the institute's forecast, the German economy is expected to grow by a meagre 0.2% in 2023, a significant decrease from the initial projections. The Ifo Institute also predicts a weak pickup in 2026, with a growth rate of just 1.3%.
Unemployment remains a pressing concern, with the Ifo Institute forecasting a rise of 155,000 unemployed people in 2023, and the unemployment rate potentially reaching 6.3%. The institute expects the unemployment rate to remain above six percent until 2027.
Timo Wollmershäuser, Ifo's chief economist, warns that if there is no progress in economic policy, further years of economic paralysis and erosion of the business location are to be feared. He suggests that fiscal policy could help pull the German economy out of the crisis.
The German federal government has initiated multiple measures to overcome the economic crisis, including a significant defense budget increase, planned government borrowing, reforms in social insurance systems, support for energy transition, and incentives for digitalization. However, the Ifo Institute's scientists estimate that the total effect of these measures will be less than initially assumed, with an impact of almost 20 billion euros less than expected in the summer forecast.
The Ifo Institute's forecast does not mention any significant improvement in the economic situation due to the EU's trade agreement with the USA, as the tariffs raised by US President Donald Trump remain largely unchanged in effect.
Inflation is another area of concern, with the Ifo Institute forecasting an average inflation rate of 2.2 percent in 2024, and a renewed increase in inflation to a rate of 2.6 percent in the following year.
The Ifo Institute's economists believe that whether Germany can permanently overcome its long-standing economic weakness depends largely on the Berlin coalition. Wollmershäuser emphasises the need for progress in economic policy to avoid further years of economic stagnation and the erosion of Germany's business location.
In August, the number of unemployed people in Germany rose above the three million mark for the first time since 2015, underscoring the urgency of the situation. The Ifo Institute's forecast does not offer any optimistic signs of immediate progress, but rather a continued struggle for the German economy in the coming years.
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