Germany’s GDP outlook perks up, but progress slow

Berlin — Germany’s Ifo institute slightly raised its 2024 forecast for economic growth in Europe's top economy on Thursday, citing stronger consumer purchasing power and a recovery in global trade in goods and industrial production in the second half.

Ifo raised its growth forecast to 0.4%, from 0.2% in March, which compares with the government’s spring projection of 0.3%.

“We are slowly working our way out of the crisis. The emphasis is on slowly,” Ifo economist Timo Wollmershäuser told a news conference.

The German economy, which was the weakest performer among big eurozone countries last year, is expected to gain some momentum in its recovery over the course of 2024, with inflation expected to fall and nominal wages forecast to rise.

“As the year progresses, the purchasing power of private households should continue to gain strength and the overall economic recovery should pick up speed as the consumer economy normalises,” Wollmershäuser said in a statement.

Ifo maintained its forecast for economic growth of 1.5% in 2025, while it expects inflation to fall to 2.2% this year from 5.9% in 2023, and drop to 1.7% next year.

Surpluses

Global trade in goods and global industrial production should continue to recover, particularly from the second half of 2024, helped by a gradual upturn in investment as monetary policy in industrialised countries is set to ease, Ifo said.

It expects the European Central Bank to make two more interest rate cuts this year, after it cut rates for the first time in five years earlier in June.

Germany’s current account surplus is set to grow to €312bn in 2024 and fall to €306bn next year, representing 7.3% and 7% of economic output, respectively.

The EU Commission recently criticised these surpluses, saying that vulnerabilities related to it remained relevant as weak domestic demand and subdued investment persisted.

“Given the size of the German economy and its trade integration in the euro area, this has negative spillovers on the rest of the area,” the commission said on Wednesday.

Countries with a high current account surplus, which measures the flow of goods, services and investments, are a drag on others with large deficits, leading to financial imbalances.

Reuters