ifo Institute expects ‘zero growth’ for Germany in ’24

The ifo Institute has revised its economic growth forecast for Germany, now projecting ‘zero growth’ for 2024, down from previously estimated 0.4 per cent.

For 2025, ifo lowered its forecast to 0.9 per cent from 1.5 per cent. The economy is now not expected to grow by 1.5 per cent until 2026, it added.

ifo Institute’s Timo Wollmershäuser described the German economy as being “stuck and languishing in the doldrums, while other countries are feeling the upswing,” citing structural issues such as insufficient investment in manufacturing and stagnant productivity.

“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.” Wollmershäuser elaborated.

Economic challenges are compounded by a poor order situation and increased savings rates—now at 11.3 per cent—due to consumer uncertainty.

However, there is at least one ray of hope, as ifo expects rate of inflation to fall yet only slowly from last year’s average of 5.9 per cent to 2.2 per cent this year. It will subsequently fall to 2.0 per cent, followed by 1.9 per cent in each of the next two years, it added.

ifo expects unemployment rate to rise from 5.7 per cent last year to 6.0 per cent. It will then drop to 5.8 per cent in the coming year and ultimately record 5.3 per cent. The national budget deficit is projected to reach 2.0 per cent of GDP this year, with improvements expected in the following years.

Key sectors like construction and manufacturing are forecasted to see declines, with construction output shrinking by 3.1 per cent and manufacturing by 2.0 per cent.

Wollmershäuser attributed these challenges to a mix of factors, including decarbonisation, digitalisation, and demographic changes, which are straining established business models and contributing to an investment slump in manufacturing.