ifo Institute Confirms German Economy to Contract by 0.4 Percent
The ifo Institute has confirmed its forecast for Germany in 2023: economic output is set to shrink by 0.4 percent. It will then rise next year by 1.4 percent – 0.1 percentage points less than previously thought. In 2025, growth is predicted to reach 1.2 percent. “Contrary to expectations so far, the recovery will probably fail to materialize in the second half of the year. The slowdown is continuing, and this trend is seen across almost all industries,” says Timo Wollmershäuser, Head of Forecasts at ifo.
“Our forecast for the year as a whole remains valid only because gross domestic product is now significantly higher than the figure published this summer, following a revision by Germany’s Federal Statistical Office. Without this revision, we would have lowered our forecast for economic growth in 2023 by 0.3 percentage points to minus 0.7 percent.”
The one bright spot is private consumption, which is projected to recover gradually in the second half of the year. “The increase in disposable household income will remain strong and, with inflation rates slowly falling, will also lead to an increase in purchasing power,” Wollmershäuser continues. More good news: although consumer prices are expected to rise by 6.0 percent this year, they should increase by just 2.6 percent next year and by only 1.9 percent in 2025.
The number of unemployed will remain elevated for the time being, at 2.59 million people this year and 2.58 million next year. Unemployment won’t go back down to 2.43 million people until 2025. The German government’s funding gap will decline only slowly: from EUR 92 billion to EUR 80 billion in the coming year and to EUR 70 billion in 2025. The current account balance (exports, imports, investment income, transfers) will rise again to 7.1 percent of economic output by 2025, after falling temporarily to 4.2 percent last year as a result of the sharp rise in import prices.
ifo Economic Forecast Autumn 2023: German Economy Continues to Cool
Price-adjusted gross domestic product will decline by 0.4% this year. In the next two years, economic output is expected to increase by 1.4% and 1.2%. The inflation rate will fall further from an average of 6.0% this year to 2.6% next year and 1.9% the year after.
