Germany’s Economy Faces Headwinds: Weaker Growth Forecast and Political Uncertainty

Institute Decreases Forecasts for German Economy Due to Struggle

Germany’s economic outlook has taken a hit as the Kiel Institute for the World Economy (IfW) revised its forecast for the country. Stefan Kooths from the IFW cited “headwinds” from both domestic and international factors as the reason for this significant decrease in growth expectations. In 2023, Germany’s economic output fell by 0.3%, and productivity in the country is believed to have been stagnant due to slower private consumption, declining exports despite global economic growth, and a struggling construction industry. While there may be a slight recovery in the spring, overall momentum is expected to remain weak.

Political uncertainty also plays a role in Germany’s economy, with the government struggling to finalize a growth package. The German Chamber of Industry and Commerce has expressed concerns over high energy costs, a shortage of skilled labor, and geopolitical uncertainties impacting export business. However, experts predict that the phase of very high inflation rates experienced since the middle of last year may be over. Consumer prices are expected to rise by 2.3% this year and by 1.8% next year, providing some relief for consumers. Despite these challenges, the institute has left its forecast for next year virtually unchanged at 1.4%.

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