The forecast for Germany's GDP growth for the current year has been significantly lowered to just 0.1 per cent, a stark reduction from the 1.3 per cent growth projected in the previous fall report, according to the latest spring report by the country's five leading economic research institutes. The projection for next year remains relatively stable at 1.4 per cent, albeit slightly down from the previous 1.5 per cent. This revision indicates that the level of economic activity in Germany will be over €30 billion (approximately $32.34 million) lower than expected due to the current economic downturn.

Despite these challenges, private consumption is set to become the primary driver of economic growth this year, with a stronger export sector expected to bolster the economy next year. However, economic output has barely risen above pre-pandemic levels, highlighting a period of stagnant productivity within the country. Germany is facing more economic headwinds than tailwinds, both domestically and internationally, as per the Joint Economic Forecast Spring 2024 report.

"Cyclical and structural factors are overlapping in the sluggish overall economic development. Although a recovery is likely to set in from the spring, the overall momentum will not be too strong," said Stefan Kooths, head of economic research at the Kiel Institute for the World Economy.

The Joint Economic Forecast Project Group noted that private consumption has picked up later and less dynamically than anticipated. Moreover, German exports have declined in spite of a global economic upswing, attributed to weak demand for key German exports like intermediate goods, and reduced price competitiveness for energy-intensive goods.

Corporate investment is also under pressure, expected to stay at 2017 levels due to ongoing economic policy uncertainty, despite a forecasted improvement next year. On a positive note, nominal effective wages are projected to increase by 4.6 per cent in 2024 and 3.4 per cent in 2025, indicating a rise in real wages over the forecast period that could compensate for previous losses. However, the wage levels seen at the end of 2021, before the inflation surge, are not expected to be reached until the second quarter of 2025.

Consumer prices are anticipated to increase by 2.3 per cent this year and 1.8 per cent next year, with core inflation rates adjusted for energy prices at 2.8 per cent for 2024 and 2.3 per cent for 2025. The robust labour market is a key factor supporting consumption, with unemployment expected to rise only slightly before declining from spring onwards, with rates forecasted at 5.8 per cent for 2024 and 5.5 per cent for 2025.

Government budget deficits are projected to decrease from 2.1 per cent last year to 1.6 per cent in 2024 and further to 1.2 per cent in 2025. Public sector revenue is set to reach record levels in Germany at 47.5 per cent and 48.4 per cent for the two forecast years, respectively.

Fibre2Fashion News Desk (DP)

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