ifo Institute Lowers Growth Forecast to 0.9 Percent for Germany in 2024

The ifo Institute has cut its forecast for German economic growth in 2024 from 1.4 percent to 0.9 percent. For 2025, it expects a slight acceleration to 1.3 percent; ifo had previously expected growth of 1.2 percent. “The last quarter of 2023 is likely to see weaker development than previously expected, which will then also have an impact on the year ahead,” says Timo Wollmershäuser, Head of Forecasts at ifo. “Uncertainty is currently delaying the recovery, as it increases consumers’ propensity to save and makes companies and private households less willing to invest.”

“This is further encouraged by the unclear situation surrounding the federal budget following the ruling of Germany’s Constitutional Court. If the budget were to be cut by EUR 20 billion in 2024, the ifo model suggests the growth rate would fall to 0.7 percent,” Wollmershäuser adds. “In principle, however, the course is set for recovery. Wages are rising sharply, employment is higher than ever before, purchasing power is thus returning, and overall economic demand should pick up again. Moreover, interest rates are past their peak and prices are rising more slowly.”

In the second half of the year, the inflation rate will drop to 2 percent, thanks in large part to falling energy prices. However, inflation in consumer-related services will remain well above 3 percent for some time to come, due to the strong rise in wages.

Unemployment is projected to rise by 191,000 people this year and by a further 82,000 people next year. A decline of 113,000 is expected in 2025. As a result, the unemployment rate in 2024 and 2025 is forecast to be 5.9 percent and 5.6 percent, respectively, after 5.7 percent in the current year. On average for the year, growth in the number of people in employment will decelerate from 353,000 this year and 83,000 next year to 9,000 in 2025.

The internationally much-criticized surplus in the German current account balance (exports, imports, transfers) will jump to EUR 285 billion in 2023, up from EUR 171 billion in 2022. Next year, it will reach as high as EUR 316 billion – equivalent to 7.5 percent of annual economic output.