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Economic institutes lower economic forecast for Germany

The German economy is stuck in an economic slump. According to the forecast, no boom is to be expected for the next two years either.

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Research institutes have presented their joint economic forecast for Germany. Source: Karl-Josef Hildenbrand/dpa

The German economy is treading water. Leading economic research institutes are lowering their economic forecasts. They expect Germany's gross domestic product to fall by 0.1% in the current year. Only a weak recovery is expected for the next two years, with growth of 0.8% in 2025 and 1.3% in 2026.

In spring, the institutes had predicted a minimal increase of 0.1 percent for 2024 and expected growth of 1.4 percent for 2025.

Structural problems

In addition to the economic weakness, structural change is also weighing on the German economy, said Geraldine Dany-Knedlik, economic expert at the German Institute for Economic Research, according to the press release. "Decarbonization, digitalization, demographic change and probably also stronger competition with companies from China have triggered structural adjustment processes that are dampening the growth prospects of the German economy."

According to the forecast, structural change and the economic downturn are having a particularly negative impact on the manufacturing industry. The competitiveness of capital goods manufacturers and energy-intensive industries is suffering from higher energy costs and increasing competition from high-quality industrial goods from China, which are crowding out German exports on the global markets.

Little investment - consumers save

According to the forecast, the persistently high level of interest rates and the high level of economic and geopolitical uncertainty are weighing on companies' investment activity. "Private households are increasingly putting their income on the high side instead of spending money on new residential buildings or consumer goods." At 11.3%, the savings rate was recently above its long-term level.

Political uncertainties

The institutes cite a "further significant increase in political uncertainty" as a risk. Although the federal government has adopted a draft budget for 2025, concerns remain about the coalition government's potential inability to act, according to the report, which refers to the many disputes within the traffic light coalition. The "growth initiative" does offer some good approaches. However, these are far from being implemented. The initiative is not helping to make economic policy clearer and more predictable for households and companies.

RND/dpa

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