Ifo Institute withdraws growth forecast

The Ifo Institute has revised its growth forecast for the current year. The researchers now expect that the economy will not grow. In addition, the unemployment rate is expected to rise.

The Ifo Institute has revised its growth forecast for the current year downwards. It now expects zero growth instead of the previous 0.4 percent. The institute also lowered its estimate for the coming year, to 0.9 percent instead of 1.5 percent. The economy is now expected to grow by 1.5 percent in 2026. “The German economy is stuck and is languishing in a slump while other countries are feeling the upswing,” says Ifo economic chief Timo Wollmershäuser.

He adds: “We have a structural crisis.” There is too little investment, particularly in industry, and productivity has been increasing stagnantly for years. We also have an economic crisis.” The order situation is poor, and the gains in purchasing power are not leading to increased consumption, but to higher savings because people are feeling uncertain.

Falling inflation, rising unemployment

As the economic researchers announced, the savings rate is now at 11.3%, well above the ten-year average of 10.1% before Corona. A small ray of hope is the further decline in the inflation rate that the experts expect. From an average of 5.9% in 2022, it is expected to fall to 2.2% this year. It will then fall to 2.0%, and in the next two years it is expected to be just 1.9%.

The unemployment rate, however, will rise from 5.7% last year to 6.0%. In 2025, the Ifo Institute expects it to fall to 5.8%, and in 2026 it should reach 5.3%. The government budget deficit is expected to reach 2.0% of economic output this year and fall to 1.3% and 0.9% in the next two years respectively.

Investment slump in industry

This year, the construction industry, whose output is expected to shrink by 3.1%, and industry, which is set to decline by 2.0 percent, are burdening the economy. “Decarbonization, digitalization, demographic change, the corona pandemic, energy price shocks and China's changing role in the global economy are putting established business models under pressure and forcing companies to adapt their production structures,” said Wollmershäuser. As a result, there is a slump in investment, especially in industry, which accounts for a significantly higher share of economic output in Germany than elsewhere. “And the population is aging faster, with fewer and fewer people in work.” Shifts from the industrial to the service sector merely explain the productivity standstill of recent years,” he added.

Kapital Medien GmbH, the publisher of the financial magazines AnlegerPlus, AnlegerPlus News and AnlegerLand, is a 100% subsidiary of SdK Schutzgemeinschaft der Kapitalanleger eV

Photo: © Gerd Altmann on Pixabay

Views: 38