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Germany's Ifo institute trims 2024 GDP forecast again due to budget

Published 01/24/2024, 01:49 AM
Updated 01/24/2024, 03:20 AM
© Reuters. FILE PHOTO: Construction sites are photographed in Frankfurt, Germany, July 19, 2023. REUTERS/Kai Pfaffenbach/File Photo

BERLIN (Reuters) -Germany's Ifo institute again downgraded its 2024 economic growth forecast on Wednesday, citing uncertainty caused by changes to the federal budget necessitated by a court ruling.

The institute now expects Europe's largest economy to grow by 0.7% this year instead of 0.9% previously forecast in mid-December. In September, it had expected growth of 1.4%.

Germany's economy shrank by 0.3% in 2023.

The November constitutional court decision left the government scrambling to revamp its 2024 budget to meet the new requirements while also reaching consensus among the coalition.

Ifo said that when it was preparing its forecast in December, it was unclear to what extent expenditures would be cut or taxes increased, and its baseline forecast had assumed that all planned fiscal policy measures would be implemented.

"Now that the German parliament's budget committee has agreed on the federal budget, we estimate that it passed additional savings of just under 19 billion euros ($20.66 billion)," said Timo Wollmershaeuser, head of forecasts at Ifo.

"The overall scope is roughly in line with what we estimated in our risk scenario for 2024 in December," he added.

Some economists are even more pessimistic than Ifo, with the IMK institute, which is close to the trade unions, predicting that the economy will shrink again this year by 0.3%.

The head of Germany's BDA employers' association said companies had lost confidence in the government and the framework conditions for the economy needed to improve.

© Reuters. FILE PHOTO: Construction sites are photographed in Frankfurt, Germany, July 19, 2023. REUTERS/Kai Pfaffenbach/File Photo

"Something must finally happen," said BDA's Rainer Dulger, calling for bureaucracy and state subsidies to be reduced.

($1 = 0.9196 euros)

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