German institutes lower 2024 growth forecasts

FRANKFURT — Two leading economic institutes cut their growth forecasts for Germany for next year, saying continued uncertainty and a budget crisis will weigh on Europe's beleaguered top economy.

The Ifo institute slashed its 2024 projection to 0.9 per cent, from 1.4 per cent previously. The DIW institute reduced its forecast to 0.6 per cent from 1.3 per cent. 

The export-oriented German economy is struggling through a lacklustre phase and is expected to shrink this year due to high inflation, an industrial slowdown and weakness in key trading partners. 

Ifo warned of continued weakness in the final stage of 2023, which would impact 2024.

"Uncertainty is currently delaying the recovery, as it increases consumers' propensity to save and makes companies and private households less willing to invest," said Timo Wollmershaeuser, the group's head of forecasts. 

A budget crisis sparked by a top court ruling last month that the government had broken constitutional rules on limiting debt will also weigh on the economy next year, the institutes warned. 

The ruling threw the government's 2024 budget into disarray, but Chancellor Olaf Scholz's ruling coalition finally clinched a deal on the spending plans on Wednesday. 

Still, DIW warned that planned savings in the budget "still need to be finalised and approved", leading to "further uncertainties".

Despite the gloomier forecasts, Ifo's Wollmershaeuser stressed that the "course is set for recovery". 

"Wages are rising sharply, employment is higher than ever before, purchasing power is thus returning, and overall economic demand should pick up again." 

He noted that price rises have eased following the sharp increases in interest rates to combat inflation.

The US Federal Reserve signalled on Wednesday its sees three interest rate cuts next year and the European Central Bank may also provide more information on the outlook for interest rates next year.

In its latest forecast in October, the government predicted the economy would grow 1.3 per cent next year.