IfW predicts a 0.1% decline in Germany’s GDP in 2024

Previous positive expectations caused by early indicators disappointed analysts

The Kiel Institute for the World Economy (IfW) predicts a 0.1% decline in Germany’s GDP this year. This is stated in its new review.

In its summer forecast, the IfW expected the country’s economy to grow by 0.2% in 2024. Economists also lowered their forecasts for German GDP growth in 2025 to 0.5% from the previous 1.1%.

Thus, the recession may be observed for the second year in a row. In 2023, the German economy shrank by 0.3%.

According to Stefan Koots, Head of Economic Forecasts at IfW, the previous positive expectations based on early indicators have been disappointed. While public and quasi-public services tended to grow, most private activities performed poorly.

Inflation will continue to decline, and after reaching 2.2% in 2024, it is likely to be around 2% in the next two years. Core inflation (excluding energy) will not reach the 2% mark until 2026, as price pressures on services will continue for longer.

The budget deficit is expected to decline from 1.9% of GDP in 2024 to 1.7% in 2025 and 2026, mainly due to a slight increase in economic output.

“The German economy is increasingly facing a crisis that is not only cyclical but also structural,” said Moritz Schularik, President of the IfW.

In particular, he noted that the government coalition’s budget cuts are an additional burden, and the ECB’s interest rate changes are coming too late for Germany. In addition, old core industries have resisted change for too long, and the asylum debate is poisoning the dialogue about the economic need to attract skilled workers from abroad.

In its fall review, the Kiel Institute for the World Economy also forecasts global economic growth of 3% in 2024-2026. As noted, it continues to develop at a moderate pace. Some acceleration in the spring seems to have slowed again in the summer. The U.S. economy is gradually losing momentum, European dynamics remain weak, and there is still no sustainable economic recovery in China.

As GMK Center reported earlier, the German ZEW economic sentiment index, which measures the expectations of financial experts, fell to 19.2 points in August this year from 41.8 points in the previous month. The last time such a deterioration in expectations occurred was in July 2022.