German GDP shrinks by 0.5 percent in 2024

December 15, 2023

Dispute over the federal budget is massively unsettling many companies in their investment planning

German GDP will fall by 0.5 percent in 2024. This is according to the economic forecast by the Cologne Institute for Economic Research (https://iwkoeln.de) (IW). And according to the Kiel Institute for the World Economy’s winter forecast (https://ifw-kiel.de), economic output in Germany is likely to fall by 0.3% in the current year, slightly less than expected in the fall forecast (minus 0.5%).

“Government acting as a brake on the economy”

Companies are particularly unsettled by the now settled dispute over the federal budget, with many putting investments on hold for the time being. For the forecast, IW researchers used model calculations to examine how this will affect the economy. According to the calculations, government spending amounting to over 20 billion euros will be cut. This will push GDP down by around 0.5 percent. In the worst case scenario, a decline of one percent is even possible.

“The German government has proved to be a real brake on the economy this year,” says IW economic expert Michael Grömling. And IW Director Michael Hüther adds: “The poor conditions in global trade are not the only reason for the continuing recession. The German government has played a decisive role in this crisis.” The incumbent coalition government must demonstrate its ability to act on fiscal policy.

Tough times for industry

Industry is currently suffering the most. According to the IW 2024, the economic sector will stagnate for the fourth year and has not made any headway since 2018. Companies have been receiving fewer orders from abroad for two years now, which is why many are holding back on investments, according to the Cologne-based institute. And construction activity in 2023 was also still below the 2019 level, due to high interest rates and high costs. According to the IW forecast, 2024 will therefore remain challenging.

Translated with DeepL.com (free version)

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