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Containers in the port of Hamburg: Hardly any growth expected in the coming year

Photo: Daniel Reinhardt/dpa

According to a report, the federal government is significantly reducing its forecast for the growth of the German economy this year. The draft of the new annual economic report, which is to be published next week, apparently only assumes an increase in gross domestic product (GDP) of 0.2 percent, as the Reuters news agency reports, citing government circles.

The government had previously expected GDP growth of 1.3 percent. However, this forecast from October has no longer been considered realistic for a long time.

In response to an official request from Reuters, a spokesman for the Federal Ministry of Economics said that the number could neither be confirmed nor denied. The government will comment with the publication of the annual economic report.

Both the Munich Ifo Institute and the Kiel Institute for the World Economy (IfW) are currently even more optimistic than the federal government. The Ifo researchers lowered their forecast for 2024 from 0.9 to 0.7 percent in January, the IfW from 1.3 to 0.9 percent in December. They want to present new forecasts in March.

In the current monthly report on the economic situation, the Green Party-led Ministry of Economic Affairs emphasized on Wednesday that current early indicators do not yet point to a noticeable economic recovery. Consumer sentiment has recently deteriorated again. Among other things, reference was made to the many strikes and the high level of sickness in Germany. This means that the expected economic recovery will be delayed again. However, the inflation rate fell significantly to 2.9 percent in January. In addition, the labor market developed more favorably at the beginning of the year, given the mild weather.

Weak global economy, crises, budget problems

According to Reuters, government circles said that there was no stimulus from the global economy regarding the lower growth forecast. There are also numerous crises that are fueling uncertainty, it said. A lower forecast was therefore also to be expected due to budget consolidation.

High inflation, rising interest rates and the weak global economy had already slowed down the German economy in 2023. GDP shrank by 0.3 percent last year.

According to Finance Minister Christian Lindner (FDP), the traffic light government wants to present a concept to strengthen Germany as a business location by spring. This should probably be synchronized with the discussions about the draft budget for 2025, which is to be presented in the summer. Both Lindner and Economics Minister Robert Habeck (Greens) recently described Germany as no longer competitive as a location.

For 2025, the Ifo Institute expects growth of 1.3 percent, the IfW of 1.2 percent. No new government forecast is expected in the annual economic report. In October, 1.5 percent was estimated. This number will not be updated until spring.

apr/kko/Reuters