Ifo: German economy will contract by 0.4 percent this year

The Institute for Economic Research (Ifo) predicted that the German economy will contract this year by 0.4 percent.

Ifo maintained its June forecast and lowered its 2024 growth forecast to 1.4 percent from 1.5 percent.

Ifo, which also raised its inflation forecast, predicted it would average 6 percent this year and 2.6 percent in 2024.

THE NUMBER OF UNEMPLOYMENTS WILL ASCEND TO 2 MILLION 591 THOUSAND

Considering that private consumption will decline 0.5 percent this year due to high inflation, Ifo predicted that the number of unemployed will rise to 2,591,000 this year.

The unemployment rate is projected to be 5.6 percent in 2023 and 5.6 percent in 2024.

Ifo predicted that the German public sector budget deficit would also decrease. 96.9 billion last year
The euro deficit is expected to shrink to 91.5 billion euros this year and 79.6 billion euros in 2024.

The current account surplus is expected to reach 263.8 billion euros this year and 301.5 billion euros in 2024.

It should be noted that Ifo’s autumn forecasts are slightly more pessimistic than June’s in terms of inflation and unemployment for both this year and next.

Ifo’s director of business cycle research and economic forecasting Timo Wollmershaeuser said the recovery of the economy would probably not come in the second half of the year.

Wollmershaeuser said that the increase in household disposable income will remain strong, leading to an increase in purchasing power as the rate of inflation gradually declines.

Although the German economy contracted 0.4 percent in the last quarter of last year and 0.1 percent in the first quarter of the year, it failed to grow in the second quarter of the year.

PROBLEMS IN THE GERMAN ECONOMY

While many crises such as the Covid-19 epidemic, supply chain disruptions, and the war between Russia and Ukraine in recent years have brought weaknesses in the German economy to the surface, the fact that many countries, especially China can produce more and more imported goods from Germany and interest rates rise with high inflation, making it difficult for the German economy to grow.

The slowdown in global growth, declining exports, high energy prices, declining industrial production and consumer efforts to cope with rising inflation are also negatively affecting the German economy.

The Kiel Institute for the World Economy (IfW) expects the German economy to contract by 0.5 percent this year.