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German Economic Advisers Cut 2024 Growth Forecast to 0.2%
Warren Takunda
German economic growth downgraded to 0.2% this year due to Ukraine war and high energy costs. Recovery expected later in the year with falling inflation and rising wages. Government remains more optimistic than economic experts.
The German Council of Economic Experts cut on Wednesday its forecasts for economic growth this year, postponing the expected recovery of the euro zone's largest economy.
The panel expects 0.2% gross domestic product growth this year, cutting its autumn forecast of 0.7% growth, their forecast showed on Wednesday, as reported by Reuters on Tuesday.
Chancellor Olaf Scholz lamented the lower GDP forecast for the year during a speech to the German Chambers of Industry and Commerce.
"The German economy has faced unprecedented challenges over the past two years or so since Russia's invasion of Ukraine," Scholz said. "We have to ensure that the open markets do not come under pressure. Protectionism only makes everything more expensive in the end. What we need is fair and free global trade."
The German economy is expected to gain some momentum over the course of the year, with inflation expected to fall and nominal wages forecast to rise.
For 2025, the economic experts forecast 0.9% growth, the report showed.
The German economy shrank by 0.2% last year, the weakest performance among big euro zone economies, as high energy costs, lacklustre global orders and record high interest rates took their toll.
At the start of this year, Germany skirted a recession, growing by 0.2% in the first quarter from the previous three-month period in adjusted terms. In the last quarter of 2023, the economy shrank 0.5%.
Now one of the other big liquid funds is FXI and it looks on the face of it pretty cheap.
The economic experts are somewhat less optimistic for 2024 than the German government, which expects 0.3% GDP growth this year and 1.0% in 2025.
The European Commission also published on Wednesday its spring forecasts. The German economy is seen growing by only 0.1% in 2024, well below the euro zone average of 0.8%.
For 2025, the commission forecasts 1.0% growth in Germany.
The German export industry has cooled down considerably, which, given its importance for the economy is a major contributor to the current economic weakness, the panel said.
Although a recovery of the global economy and world trade should contribute to exports gaining some momentum in 2024, the economic council forecast a 0.3% decline in exports this year, before a 1.8% expansion in 2025.
As inflation eases, it is expected that the first interest rate cuts by the European Central Bank will take place over the course of the year, improving financing conditions in areas such as construction.
Inflation in Germany is likely to be at 2.4% this year, falling to 2.1% in 2025. Inflation was at 5.9% last year, hitting private consumption.
Core inflation is expected to be at 3.0% in 2024, falling to 2.4% in 2025.
Pointing to falling inflation, improved business sentiment and increased foreign investment, Scholz added: "This all shows that a stable rebound is possible."
The panel said the war in Ukraine and conflict in the Middle East represent significant risk factors for the global economy.
In addition to the danger of energy prices rising again, the future direction of monetary and fiscal policy could be uncertain.
"If the decline in inflation in the euro zone slows at the current rate, this could prompt the ECB to postpone the first key interest rate cuts," the report said.

Source: Reuters