Ifo Economic Forecast 2010 - The Lacklustre German Economy

On 15 December 2009 the Ifo Institute presented its 2010/2001 economic forecast at its annual pre-Christmas press conference. Since spring 2009 production and trade have again increased, stimulated by billions of euros allocated to economic stimulus programmes, massively expansive monetary policy and comparably low oil prices. In addition, a turnaround in the global inventory growth cycle has occurred. The pace of growth will remain low, however. A key problem is still the weakening of the international financial market, whose viability is still limited in important areas. In addition, the banking system has suffered tremendous equity losses resulting from the high value-adjustment requirement of structured securities. In important industrialised countries there is also a real-estate crisis, which increases the write-off requirements of their banks. Credit conditions thus remain restrictive worldwide, which is having massively negative effect on the financing of investments and new jobs. In total world GDP will increase by 3.1 percent in 2010 and by 2.6 percent in 2011, having declined by 1.1 percent in 2009. Price increases will accelerate somewhat worldwide. The increase in prices will accelerate somewhat worldwide. In Germany economic output stabilised in the spring. In the second quarter real GDP expanded, seasonally and calendar adjusted, by 0.4 percent, and in the third quarter by 0.7 percent. Due to the exceptionally strong decline in the preceding half year by almost 6 percent, total economic output, and here especially the production in export-dependent industries, remained overall at a very low level, however. The rate of capacity utilisation - extrapolating from the Ifo capacity utilisation measurement in manufacturing is currently some 10 percentage points below the long-term average. On the whole, and seasonally and calendar adjusted, economic output has increased again in the final quarter of 2009, although at a somewhat slower pace (0.5 percent) than in the previous quarter. For the second half year of 2009 in comparison to the first half of the year, there was a 1.2 percent increase in economic output, seasonally and calendar adjusted; in comparison to the previous year, which was marked by a strong decline in the winter half year, the result is a drop of 3.0 percent, however. For 2009 as a whole, real GDP will fall by 4.9 percent. On average for 2010, real GDP will likely increase by 1.7 percent, and by 1.2 percent on average for 2011.