Germany's Economic Forecast Update

By Rene Wagner and Christian Kraemer

BERLIN (Reuters) – Germany's leading economic institutes have downgraded their forecast for 2024, now predicting a contraction of 0.1% for Europe's largest economy. Sources familiar with the figures from the autumn joint economic forecast shared these insights with Reuters on Tuesday.

Last year, Germany's economy contracted by 0.3%, making it the weakest among large eurozone peers.

Inflation is expected to decrease to 2.2% this year, down from 5.9% in the previous year, aligning closely with the European Central Bank's target of around 2% for the following two years.

Despite the decline in inflation, consumption remains sluggish, negatively impacted by high energy costs, weak global orders, and elevated interest rates.

The previously resilient labor market may soon feel the effects of the ongoing economic downturn. Unemployment is projected to rise to 6.0% from 5.7%, a level not anticipated until 2026.

Recent economic indicators present a bleak outlook, with German business sentiment declining for a fourth consecutive month in September—worse than expected, according to a recent survey.

Additional data indicated that German business activity is contracting at its fastest rate in seven months. This trend suggests the economy is poised for a second consecutive quarterly decline in output.

The economic institutes have revised their long-term forecasts, now projecting growth of only 0.8% in 2025, down from an earlier estimate of 1.4%, and 1.3% growth anticipated for 2026.

The comprehensive joint economic forecast from these institutes is set for release on Thursday, which may lead to slight modifications in the upcoming figures.

The German government will incorporate these estimates from various institutes—namely Ifo, DIW, IWH, IfW, and RWI—into its own economic predictions. Its current forecast anticipates a 0.3% growth for this year, with revisions expected in October.