The ifo Institute has lowered its forecast for economic growth in Germany for this year. It now expects zero growth instead of the previous 0.4%. The Institute also lowered its estimate for the coming year to 0.9% instead of 1.5%. The economy is now not expected to grow by 1.5% until 2026. “The German economy is stuck and languishing in the doldrums, while other countries are feeling the upswing,” says Timo Wollmershäuser, Head of Forecasts at ifo.
He adds: “We have a structural crisis. Too little investment is being made, especially in manufacturing, and productivity has been stagnating for years. We also have an economic crisis. The order situation is poor, and gains in purchasing power are not leading to increased consumption but instead to higher savings because people are unsettled.”
The savings rate is now 11.3%, significantly higher than the ten-year average of 10.1 percent before the Covid. There is at least one ray of hope: The rate of inflation will fall only slowly from last year’s average of 5.9% to 2.2% this year. It will subsequently fall to 2.0%, followed by 1.9% in each of the next two years. The unemployment rate will rise from 5.7% last year to 6.0%. It will then fall to 5.8% in the coming year and ultimately reach 5.3%. The deficit in the national budget is likely to reach 2.0% of economic output this year and fall to 1.3% and 0.9% respectively in the next two years.
A negative impact this year will have construction, whose output is likely to shrink by 3.1%, and manufacturing, which is set to decline by 2.0%. “Decarbonization, digitalization, demographic change, the coronavirus pandemic, the energy price shock, and China’s changing role in the global economy are putting pressure on established business models and forcing companies to adjust their production structures,” says Wollmershäuser. As a result, there is an investment slump, particularly in manufacturing, which accounts in Germany for a significantly higher proportion of economic output than elsewhere. “And the population is aging faster, with fewer and fewer people in work. Shifts from the manufacturing to the service sector largely explain the productivity standstill of recent years,” he adds.
