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Forecasts for German economy see stagnation, or recession, in 2024


Separate economic forecasts for the German economy predicted continued weakness in the current year, although the outlook varied between stagnation and recession.

The Macroeconomic Policy Institute (IMK), part of the trade union-affiliated Hans Böckler Foundation, predicted German gross domestic product (GDP) to shrink by 0.3% in 2024.

Meanwhile, the Nuremberg Institute for Employment Research (IAB), the research arm of Germany’s Federal Employment Agency, forecast very slight growth of 0.1%.

Both forecasts, which were released separately on Wednesday, predicted a very modest recovery in 2025. Each also found that a favourable labour market for workers would remain largely stable, with unemployment expected to increase only slightly.

IMK’s forecast called for 0.8% growth in German GDP in 2025.

“The German economy is only slowly emerging from its weak phase,” IMK said in the report. “Positive impetus for economic growth will come from private consumption in 2024 and above all in 2025 as a result of lower inflation and higher wage agreements.”

According to the IMK report, “the German government’s restrictive fiscal policy and the continued high interest rates for the time being” are preventing the stagnant economy from turning to growth.

Government fiscal policy, such as increasing or decreasing taxes and spending, can have a major impact on the broader economy and be used by policymakers to stabilize economic conditions, the report argued.

The IMK researchers forecast the currently tight and competitive labour market in Germany to remain comparatively stable, with unemployment only rising slightly.

IMK forecast the unemployment rate to average 5.9% in 2024 and 6.0% in 2025. This compares to an average unemployment rate in 2023 of 5.7%.

IAB, meanwhile, forecast, the number of people in employment in Germany will rise by 190,000 to 46.12 million over the course of the year. At the same time, however, the number of unemployed is also expected to rise by 120,000 to 2.73 million.

In particular, people who are already unemployed have significantly worse chances of getting a job again and long-term unemployment will be significantly higher than before the coronavirus pandemic, IAB predicted.

“Despite the high demand for labour, there are signs of consolidation here,” said IAB economist Enzo Weber.

“The labour market is also being affected by the ongoing economic downturn. Measured against the weak economy, however, it is holding up comparatively well,” Weber said.

The IAB forecast said Germany’s economic outlook is cloudy, especially at the beginning of the year, but a limited recovery is expected in the course of 2024.

Germany’s economy has struggled over the past year, and other forecasts from influential economic think tanks have also predicted tepid growth.

A few weeks ago, for example, the Munich-based ifo Institute forecast German gross domestic product (GDP) to grow by 0.2% in 2024. The German government mirrored that prediction in its own forecast.

According to the IMK forecast, the inflation rate is expected to average 2.4% for the current year, down from 5.9% in 2023.

The inflation rate is therefore likely to be “close to the inflation target of the European Central Bank (ECB) and reach 2.0% on average in 2025,” according to the institute.

The forecast also predicts that the ECB will respond to lower inflation, and weak economic performance in the eurozone, by cutting interest rates beginning in April 2024.

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