Germany’s Economic Forecast Downgraded

By Rene Wagner and Christian Kraemer

BERLIN (Reuters) – Germany’s leading economic institutes have downgraded their 2024 economic forecast, expecting Europe’s largest economy to shrink by 0.1%, according to sources from the autumn joint economic forecast, as reported by Reuters on Tuesday.

Last year, Germany’s economy was the weakest among its large euro zone peers, with a contraction of 0.3%.

Inflation is anticipated to decrease to 2.2% this year, down from 5.9% last year, and is expected to stabilize around the European Central Bank’s target of 2% in the following two years.

Despite the decline in inflation, weak consumption, high energy costs, sluggish global orders, and elevated interest rates continue to impact the economy negatively.

The resilient labor market may soon feel the effects of economic downturns, with unemployment projected to rise to 6.0% from 5.7%, a threshold not predicted to be reached until 2026.

Recent economic data reveals a bleak scenario: German business confidence has plummeted for four consecutive months, with a significant drop reported on Tuesday. Earlier data indicated a sharp contraction in German business activity in September, marking the fastest decline in seven months, suggesting a second consecutive quarter of reduced output.

The institutes have also revised down their forecasts for coming years, cutting the 2025 growth forecast to 0.8% from 1.4% and estimating a growth of 1.3% for 2026.

The joint economic forecast from these institutes will be officially published on Thursday, with potential for slight adjustments before release. The economy ministry compiles estimates from institutes including Ifo, DIW, IWH, IfW, and RWI for its own predictions.

Currently, the German government anticipates an economic growth of 0.3% for this year, with an update due in October.