Mini-minus instead of mini-plus: The leading research institutes have lowered their already low economic forecast for the German economy. Gross domestic product is expected to fall by 0.1 percent in 2024, shrinking for the second year in a row, according to the autumn report published on Thursday. In March, a mini-plus of 0.1 percent was predicted. The recession in Germany is also hitting the Austrian export economy hard.
For 2025, the forecast in the new joint diagnosis was cut from 1.4 to 0.8 percent. Growth of 1.3 percent is expected to follow in 2026. “In addition to the economic weakness, structural change is also putting a strain on the German economy,” said Geraldine Dany-Knedlik, head of forecasting and economic policy at the German Institute for Economic Research (DIW). “Decarbonization, digitalization, demographic change and probably also greater competition from companies from China have triggered structural adjustment processes that are dampening the growth prospects of the German economy.”
This has been standing still for more than two years. A slow recovery is likely to begin in the coming year, but economic growth is unlikely to be able to continue the trend from before the corona pandemic “in the foreseeable future,” according to the DIW. The institutes see industry as being particularly under pressure. Their competitiveness is suffering from increased energy costs and increasing competition from high-quality industrial goods from China, which are displacing German exports on world markets. The weakening global economy is reflected in a lack of new orders.
Lack of investment
According to the institutes, the persistent lack of investment is symptomatic of the problems in the manufacturing sector. The persistently high level of interest rates and the great economic and geopolitical uncertainty are likely to have weighed on both companies’ investments and private households’ propensity to purchase. “Private households are increasingly saving their income instead of spending money on new housing or consumer goods,” it said.
The persistent economic downturn is unlikely to leave its mark on the labor market. This year and next, the unemployment rate is expected to rise to six percent. For comparison: in 2023 it was 5.7 percent. This value should not be reached again until 2026. “The economic standstill is now showing clearer signs on the labor market,” said the institutes.
Economists expect inflation in Germany to ease. This year, consumer prices are only expected to rise by an average of 2.2 percent, after the inflation rate last year was 5.9 percent. In the next two years, the inflation rate is likely to level off at two percent.
The joint diagnosis serves the German federal government as a basis for its new projections in October, which in turn form the basis for the tax estimate. In its spring forecast, the Federal Ministry of Economics assumed growth of 0.3 percent in the current year and predicted an increase of 1.0 percent for 2025. The joint diagnosis is prepared by the RWI in Essen, the Ifo Institute in Munich, the IfW in Kiel, the IWH in Halle and the Berlin DIW.
