Germany's top five economic think tanks have markedly decreased this year's growth prediction for the country's economy, attributing the downturn to both cyclical and structural weaknesses amidst sluggish economic activity. The revised outlook estimates the German economy will only see a 0.1% growth this year, a significant decline from the previous prediction of 1.3% in the last report.
The growth forecast for the following year has also been slightly reduced from 1.5% to 1.4%. As a result, economic productivity is predicted to fall by over 30 billion euros due to the current period of economic weakness.
The five prestigious think tanks—ifo, DIW Berlin, IfW Kiel, IWH, and RWI - Leibniz Institute for Economic Research—that contributed to the report conduct these studies twice a year on behalf of the Federal Ministry for Economic Affairs and Climate Action.
Stefan Kooths, Chief of Economic Research at the Kiel Institute for the World Economy, cited overlapping cyclical and structural factors as the cause of the overall sluggish economic development. While a recovery is anticipated in spring, it might not provide significant momentum to the economy.
Private consumer spending, bolstered by a strong labor market, is expected to be the primary driver of the economy, followed by increased exports in the coming year. However, the report highlighted that persistent uncertainty regarding economic policy is negatively affecting corporate investment plans, which are expected to remain at 2017 levels, despite a potential upturn next year.
The report predicts that nominal wages will increase by 4.6% this year and 3.4% the next, resulting in real wage growth throughout the forecast period that will offset losses from 2022 and the first half of 2023. However, the institutes have been cautious in suggesting that wage levels, which saw a steep rise in inflation at the end of 2021, are not likely to be achieved until the second quarter of 2025.
Inflation is predicted to stabilize at 2.3% this year and 1.8% the following year. Core inflation, excluding the impact of energy prices, is expected to hover around 2.8% this year and drop slightly to 2.3% next year.
Lastly, the report notes that even with the increase in real unit labor costs due to rising wages, these remain favorable for labor demand. The unemployment rate is projected to register at 5.8% this year before decreasing to 5.5% the next.
