Ifo Economic Forecast 2007/2008: Upswing at a slower pace

The world economy is in the fourth year of an economic upswing and has also continued to expand robustly this year. Growth in GDP has been dynamic as a result of the favourable profit situation of enterprises, higher stock prices and, despite the recent increases, the still comparatively low, long-term interest rates. The expansion of the world economy will continue to be lively in the forecast period but will flatten somewhat. The upswing in the euro zone will initially continue at a robust pace but will be somewhat less dynamic next year. GDP in the industrialised countries will grow by 2.5% in 2007 and by 2.8% in 2008. World trade will expand this year by 7.5% and next year by 8.0%. In Germany, the economic upswing has continued despite the increase in the rate of VAT at the beginning of the year. Seasonally adjusted, total economic output rose in the first quarter at a current annual rate of 2.1%, although previously the pace of expansion had been 4.0%. In the forecast period, the economic upswing will continue but will not match the robust pace of the past year. Total economic output will expand this year by 2.6% (working-day adjusted by 2.8%). In 2008 the economic expansion will enter its advanced phase.