The economic research institutes in the Joint Economic Forecast project group presented their Autumn Report entitled “The return of purchasing power - great political uncertainty” today.
In it, the participating institutes correct their spring forecast downwards: they assume that price-adjusted gross domestic product will shrink by 0.6% this year, but will pick up speed again in the coming two years, by 1.3% and 1.5% respectively. The inflation rate drops to 6.1% in 2023, and then falls significantly to just 2.6% in 2024 and 1.9% in 2025.
The institutes assume that the economy will pick up speed again towards the end of the year after a slow-down in this quarter, and will see a further substantial acceleration after that. Here, the growth will mainly be driven by consumer spending: inflation-related losses of purchasing power in private households will increasingly be offset and, coupled with clearly rising wages and a generally robust employment situation, will help to stimulate consumer spending. The Joint Economic Forecast suggests that fixed investment will decline in the coming year, with falling investment in construction contrasting with a continuing positive development in machinery and equipment. With regard to external economic development, the institutes expect exports to be initially hampered by the global economic slowdown, but to pick up speed again substantially in the course of the coming year.
The institutes believe that the labour market will also see a positive development overall. The rise in employment will thus continue, albeit at a slower pace. The slight rise in unemployment this year is likely to be followed by falls in 2024 and 2025 as the economy picks up speed.
Federal Minister for Economic Affairs and Climate Action, Dr Robert Habeck, said:
“At the moment we are seeing cyclical issues triggered by the aftermath of the energy price crisis, the need for the ECB to tackle inflation, and the weakening of major global economic partners. But the domestic economy is headed in the right direction: the latest figures show a slight rise in real incomes, that consumer spending has stabilised, the rate of inflation is continuing to fall, and investments in machinery and equipment are providing a boost. And the cautiously positive assessment by the economic research institutes of the economic development in the coming years is most encouraging.
But it is also clear that we need to solve our growth problems and tackle major structural challenges. We are suffering from problems like the skills shortage and excessive bureaucracy. And we are working on them. At the same time, we should realise that our country indubitably has great strengths that are helping us through this phase. They include a strong, highly innovative SME sector, an intact industrial sector with long value chains, well trained people, a high degree of legal certainty. And that is why the brisk interest in investing here remains undiminished. More than two dozen companies are planning investments worth €80 billion, and that’s just the sum of those investments which exceed €100 million. There is also great interest in the expansion of the solar industry.
But the restrictive interest rate environment and the period of global economic weakness – and especially the development in China – are making life difficult for us as a nation of exporters. So we need to act. We need investment. To attract this, we need to remove barriers to investment, clear through the jungle of red tape, and make life easier for business people. We have already achieved some of this: we’ve speeded up our permitting procedures, we’ve introduced ‘reality checks’ for the impact of legislation, we’re reviewing the reporting requirements, and we as a government will press ambitiously ahead with the pruning of bureaucracy and the removal of barriers. Germany must cast off its self-imposed shackles.
In particular, the economic research institutes are calling for more political certainty as we face up to the coming challenges, not least the transition of the German economy to climate neutrality. It will therefore be important to provide targeted incentives and boosts to investments – both private and public. The Growth Opportunities Act is an important step for this, and the €211 billion strong Climate and Transformation Fund, which helps companies invest in modernisation, is another. Our Skilled Immigration Act is creating new possibilities which now need to be intensively used in practice. And of course we need competitive energy prices. The energy-intensive industrial sector in particular is still battling against the consequences of the energy crisis and is on the cusp of its transition. In the medium term, companies will benefit from the expansion of renewable energy coupled with smart measures to get the cheap electricity across to our industry, but until then we need a bridge. Proposals for this are on the table.”
The Federal Minister for Economic Affairs and Climate Action will present the Federal Government’s autumn projection on 11 October.