Germany’s Economic Outlook: Navigating Headwinds and Uncertainty

Institute Decreases Forecasts for German Economy Due to Struggle

The German economy is facing challenges, as the Kiel Institute for the World Economy (IfW) has revised its economic forecast. IfW’s Stefan Kooths cited “headwinds” from both domestic and international factors as the reason for this change. While previously, Germany was expected to grow at 1.3%, this year the growth rate is projected to be only 0.1%.

In 2023, Germany’s economic output fell by 0.3%, and productivity in the country has been stagnant, according to IfW experts. They attribute this decline to slower private consumption, declining exports despite global economic growth, and a struggling construction industry. While there may be a slight recovery in the spring, overall momentum is expected to remain weak.

Political uncertainty is also a factor affecting the German economy, as the government struggles to finalize a growth package. The German Chamber of Industry and Commerce echoes these concerns, pointing to high energy costs, a shortage of skilled labor, and geopolitical uncertainties impacting export business.

On a positive note, experts predict that the phase of very high inflation rates experienced since the middle of last year may be over soon. Consumer prices are expected to rise by 2.3% this year and by 1.8% next year, providing some relief for consumers. Despite these challenges, IfW has left its forecast for next year virtually unchanged at 1.4%.

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