BERLIN (Reuters) – The German economy will contract by 0.4% this year, the Ifo Institute said on Thursday, confirming its previous forecasts published in June.
“Contrary to previous expectations, the recovery is likely to fail to materialise in the second half of the year,” said Ifo’s head of forecasts Timo Wollmershaeuser.
Ifo is nonetheless sticking with its 2023 forecast because Germany’s statistics office revised its economic assessment of the first quarter of the year to a 0.1% GDP decline from a prior estimate of a 0.3% drop, Wollmershaeuser said.
“Without this revision, we would have lowered the forecast for economic growth this year by 0.3 percentage points to minus 0.7%,” he said.
For 2024, the economic institute expects a 1.4% expansion, 0.1 percentage points less than previously forecast. In 2025, growth will be 1.2%, it said.
The bright spot is private consumption, which should gradually recover in the second half of this year.
“The increase in disposable household income will remain strong,” Wollmershaeuser said. With inflation rates slowly falling, there will be an increase in purchasing power, he added.
Inflation is forecast to ease slowly from 6.9% in 2022 to 6.0% this year, then further to 2.6% in 2024 and 1.9% in 2025.
The number of unemployed will initially remain elevated at 2.59 million people this year and 2.58 million next year.
In 2025, unemployment should fall to 2.43 million people, according to the Ifo forecasts.
The current account balance will increase to 6.9% of GDP by 2025, after it had temporarily fallen to 3.7% in 2022 as a result of a strong increase in the price of imports.
(Reporting by Maria Martinez; Editing by Maria Sheahan)
