Germany's economic output will stagnate this year. This is the assessment of the Paris-based organization of industrialized countries OECD in a report presented on Wednesday. "High inflation is eroding real incomes and savings, dampening private consumption," it said. After growing by 4.9 percent last year, it will shrink by 1.4 percent this year, according to OECD estimates. Germany's exports, on the other hand, are recovering. Investment activity will also continue to increase despite rising interest rates.
Niklas Záboji
Business correspondent in Paris
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In the OECD's view, it would be wrong to react to stagnating economic output with an expansionary fiscal policy. Such a course must be avoided in order to contain inflationary tensions. Especially since, according to the organization, the German state will invest more itself and provide significant tax incentives for "green" investments. In order to accelerate the energy transition and digitalisation, it calls for better procedures and higher capacities for the planning and approval of infrastructure measures.
The OECD forecast contrasts with the growth rate of 0.4 percent promised by the German government at the end of April, which formed the basis for the latest tax estimate. "We are now seeing that a gradual recovery is beginning," Federal Economics Minister Robert Habeck (Greens) said at the time. Germany's leading economic research institutes had also forecast an increase of 0.3 percent. The International Monetary Fund was more skeptical. In mid-April, he even predicted a 0.1 percent decline in German economic output.
Urgent advice
Of the 38 OECD member states, only Estonia, Sweden and Chile will perform worse than Germany this year, according to the new forecast. In Hungary, Lithuania and Finland, economic output will also stagnate, while elsewhere it will grow everywhere – by an average of 0.9 percent in the eurozone, 1.4 percent in the OECD countries and 1.6 percent in the USA. For the global economy, the organization predicts an increase of 2.7 percent. This is also due to the fact that, according to the OECD, China is up by 5.4 percent and India by as much as 6 percent.
"The global economy seems to have bottomed out, but there is still a long way to go to achieve strong and sustainable growth," said Clare Lombardelli, the recently appointed OECD Chief Economist. Factors such as falling inflation, easing supply bottlenecks and the reopening of the Chinese economy are having a stimulating effect on the economy, and global economic growth of 2024.2 percent is expected in 9. However, this is "still well below the average of the ten years before the Corona pandemic," the Briton warned.
In their view, strong and sustainable growth requires economic and structural policy measures, i.e. reforms – even if this is difficult due to persistent core inflation, high debt levels and low output potential. The OECD chief economist is critical of the growing geopolitical tensions and the trade and investment restrictions introduced by several countries in concern for the security of supply chains. "Increasingly restrictive trade policies threaten to erode global trade profits and worsen the development prospects of lower-income countries," she said.
"Central banks need to stick to their hawkish stance until there are clear signs that inflationary pressures are easing," Lombardelli said. Some economies may also need further rate hikes to bring down stubbornly high core inflation.
However, it is important to be "very vigilant, because it is still uncertain exactly what effects the rapid and largely synchronized monetary policy tightening will have after the very long period of low interest rates". After all, "some vulnerabilities" in the financial markets have already come to light.