The Kiel Institute for the World Economy (IfW Kiel) is more optimistic about the German economy this year than just a few months ago. The institute expects gross domestic product (GDP) to increase by 0.5 percent this year, after it had assumed 0.3 percent in mid-December. For the coming year, the researchers expect an increase of 1.4 percent.
The economic outlook had recently "brightened somewhat" and the German economy was "struggling out of the energy crisis," it said. Nevertheless, the upward momentum remains "subdued". "The recent significant decline in gas prices will initially stimulate the economy in Germany only slightly," explained Stefan Kooths, head of the Kiel Institute for Economic Research. Above all, they relieved the state budget, which now had to step in with fewer subsidies within the framework of the energy price brakes.
In addition, price inflation will remain high. For example, the Kiel Institute expects inflation of 5.4 percent this year, and could be two percent next year. It is therefore important to take "decisive countermeasures against monetary policy," Kooths demanded.
Ifo expects 1.7 percent growth in 2024
The Munich-based Ifo Institute, however, maintained its slightly more pessimistic view and expects the German economy to largely stagnate this year (minus 0.1 percent). The institute assumes that the economy in the consumer-oriented sectors "suffers and shrinks" in view of high inflation, but that industrial activity will support growth. The experts at the Halle Institute for Economic Research (IWH) also expect a weak economy in Germany in 2023. The gross domestic product will increase by only about 0.4 percent, it was said in the spring forecast published on Tuesday of the Institute.
For 2024, the Ifo Institute again expects growth of 1.7 percent. Thus, the Institute has increased its economic expectations for Germany in the coming year slightly by 0.1 percentage points to its forecast in December, as it announced on Wednesday in Berlin. And the inflation rate will then normalize to 2.2 percent, according to the expectations of Munich economic researchers. Expectations regarding the budget gap have also improved.
Real wages still falling in 2023
"After a further decline in gross domestic product of 0.2 percent in the first quarter, the economy will recover in the further course," said Ifo economic researcher Timo Wollmershäuser. "By the middle of the year at the latest, rising real wages will support the domestic economy." Overall, however, he still expects a minus in real wages for 2023 as a whole.
Ultimately, "all of us" are the losers of the crisis, Wollmershäuser said. Without them, Germany would be in a much better position today. Ifo President Clemens Fuest also commented in this direction. Prosperity is significantly lower than in 2019, he said.
In addition to noticeable increases in collectively agreed wages, gradually falling inflation rates are also expected to contribute to the turnaround in the course of the year. "The peak of inflation has been reached," Wollmershäuser said. On average this year, he expects an inflation rate of 6.2 percent. This is slightly less than the December forecast. He does not expect any further inflation surge from energy prices in the coming months, Wollmershäuser said. At the end of the year, the decline in energy costs will also reach households and even depress inflation next year.
Optimism about the state budget
The Ifo is more optimistic about the state budget than three months ago. He will be in the current and next year with 1.3 and 0.3 percent of economic output in the red, it said. In December, the forecast of the Munich was still at 2.6 and 1.2 percent deficit. Among other things, the economic researchers now expect 35 billion euros lower expenditure on state energy price brakes due to lower prices.