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Institute lowers forecasts as German economy faces challenges

The Kiel Institute for the World Economy (IfW) has significantly revised its economic forecast for Germany in the upcoming year. Stefan Kooths from the IfW cited “headwinds” for the German economy both domestically and internationally, stating that the country is facing challenges.

The institute now expects a meager growth of only 0.1% for this year, a significant decrease from their previous forecast of 1.3% growth in 2024. However, their forecast for next year remains relatively unchanged at 1.4%. The German economy experienced a decline of 0.3% in 2023, with productivity stagnating.

Private consumption in Germany is not as robust as expected, and exports have declined despite a global economic upturn. The construction industry is also facing difficulties, with some signs of recovery expected in the spring but overall momentum being weak.

Moreover, the IfW sees ongoing “political uncertainty” dampening companies’ investment activities. The German government’s challenges in finalizing a growth package, with differing opinions from Finance Minister Christian Lindner and Economy Minister Robert Habeck, are contributing to this uncertainty.

The German Chamber of Industry and Commerce has expressed concerns about the country’s economic outlook, citing high energy costs, a shortage of skilled labor, and geopolitical uncertainties affecting export business. On a positive note, experts predict that inflation rates, which have been high since mid-last year, are expected to decrease, with consumer prices projected to rise by 2.3% this year and 1.8% next year.

In summary, while there may be some signs of recovery in certain areas such as private consumption and export business in the spring of next year, experts expect Germany’s economy to continue facing challenges due to ongoing political uncertainty and other headwinds both domestically and internationally.

By Samantha Jones

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