The calculations that Germany would soon recover from the so-called “technical” recession and its temporary effects have evaporated, at least for the ifo economic institute. According to his updated analysis, the German economy will contract by 0.4% this year, and not -0.1%, as he predicted back in the spring. The downward revision of the institute, based in Munich, also affects next year. The growth forecast for Gross Domestic Product (GDP) for 2024 falls for its analysts from 1.7% previously estimated to 1.5%.
The IFO institute forecasts a drop in German GDP of 0.4% in 2023, with a 1.7% drop in private consumption weighed down by inflation
Ifo’s economic chief, Timo Wollmershäuser, drew a soccer parallelism commenting on those black forecasts. “Things are not just not going well in German football at the moment,” he explained to the public broadcaster ARD. He was alluding to the 0-1 defeat of the German team the night before in the friendly against Colombia, which followed the defeat suffered the previous week against Poland and the meager draw against Ukraine. Criticism rains down on the coach, Hansi Flick, a year before Germany hosts the Euro Cup.
“There are quite a few problems in football and also in the German economy,” added Wollmershäuser. he entered technical recession the first quarter of the year, when its GDP fell by 0.3%, after having already contracted its economy by 0.5% between October and December. With this, two consecutive quarters were accumulated, an accepted criterion for the definition of technical recession. For Ifo, the leading economy in the euro zone will not take off for the remainder of the year either.
The Five Wise Men
His analysis differs from that coming from the expert council that advises the government, the so-called Five Sages. The team still assures now that there will be a stagnation and that the year will close with 0.0%according to the analysis of the team president, Monika Schnitzerto the Reuters agency.
“He European Central Bank is acting and continues to raise interest,” added the head of the Five Wise Men, the prestigious team that held this Wednesday his 60 years of life with the chancellor Olaf Schölz as keynote speaker. Schnitzer thus alluded to rate hikes as an ECB instrument or corrective to contain inflation.
The Ifo considers, however, that its effects will continue to weigh on the leading economy of the euro zone. The biggest brake for the current year will come from private consumption and due to the high inflation, since it supposes a significant loss of purchasing power for many consumers, argues the Ifo. “The German economy is coming out of the recession very slowly,” the institute continues.
The ECB has already raised basic interest rates eight times in a row, to the current 4%. The rate of inflation in Germany it will drop from 6.9% in 2022 to 5.8% this year. In 2024, the price increase should gradually return to normal and fall to 2.1%. In other words, close to the target set by the ECB.
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But until that happens, the consumer will be under the effects of the so-called “perceived inflation”, estimated by Ifo analysts at 18%. For that institute, high inflation will cause private consumption to fall this year by 1.7%. And that it only grows again in 2024, 2.2%.
The situation of working market remains strong, with low unemployment and record occupancy levels. But even there a negative evolution will take place this year, warns the Ifo: the number of unemployed will increase slightly at first, from 2.42 to 2.55 million, to drop again next year to 2.45 million. This equates to an unemployment rate of 5.3% in 2023 and 5.5% in 2024, after 5.3% last year.