ifo Institute Cuts Growth Forecast for Germany in 2024 to 0.7%
The ifo Institute has cut its growth forecast for Germany in 2024 to 0.7%, down from the 0.9% it had predicted in mid-December. “Now that the German parliament’s budget committee has agreed on the federal budget, we estimate that it passed additional savings of just under EUR 19 billion,” says Timo Wollmershäuser, Head of Forecasts at ifo. “Companies and households will carry a greater burden or receive less relief, and government spending will be cut. That means the overall scope is roughly in line with what we estimated in our risk scenario for 2024 in December. The economic impact is also likely to be of a corresponding magnitude.”
Measures to consolidate the budget became necessary after Germany’s Federal Constitutional Court declared in November 2023 that the government’s allocation to its Climate and Transformation Fund of untapped credit originally earmarked for the coronavirus pandemic was unconstitutional and therefore null and void. At the time the ifo Economic Forecast was prepared in December, it was completely unclear to what extent expenditure would be cut or taxes increased; for this reason, the baseline forecast assumed that all fiscal policy measures planned up to that point would be implemented regardless of the budget gap. Since it was also foreseeable that additional consolidation efforts would be necessary to close the budget gap, the forecast included a risk scenario that estimated the impact on the German economy of an across-the-board package of measures amounting to EUR 20 billion.
