“Germany is experiencing prolonged stagnation,” says Oliver Holtemöller, head of the Macroeconomics Department and vice president at the IWH. At the end of 2023, private consumption and investment were lower than before the outbreak of the pandemic four years ago. There are several reasons for this. High inflation has depressed real incomes and households are holding back on consumer spending. Industrial production in energy-intensive sectors is declining significantly. However, general concerns about Germany's competitiveness as a business location are also depressing the propensity of households and companies to spend. What is supporting the economy is the fairly robust labour market. The recent rise in real wages is likely to continue in 2024 and the resulting increase in private consumption will stabilise corporate investment. However, construction investment will continue to suffer from high financing costs. “Economic stagnation will continue in the first half of the year, with the economy expected to pick up slightly thereafter,” says Holtemöller. The general government budget deficit is likely to decrease further due to the restrictive fiscal policy and the gradual economic recovery.

“One risk for the German economy relates to the question of how well today’s significant structural change can be managed,” the economist says. Parts of the manufacturing industry, such as energy-intensive producers or suppliers to the automotive industry, are shedding jobs. As there is a shortage of labour in the economy as a whole, it should in principle be possible to quickly re-employ the skilled workers who have been made redundant, some of whom are highly qualified. There are, however, often major obstacles to both regional and professional mobility that make reallocation in Germany difficult. Moreover, the currently widespread uncertainty could prevent companies from hiring labour in order to expand their business activities.

The extended version of this forecast contains three boxes (all in German):

Box 1: GRNN ‒ A new tool in the forecasting toolbox for nowcasting GDP

Box 2: On the estimation of potential output

Box 3: An analysis of forecast quality with help of the IWH Forecasting Dashboard

Publication:
Drygalla, Andrej; Exß, Franziska; Heinisch, Katja; Holtemöller, Oliver; Kämpfe, Martina; Kozyrev, Boris; Lindner, Axel; Mukherjee, Sukanya; Sardone, Alessandro; Schult, Christoph; Schultz, Birgit; Zeddies, Götz: Konjunktur aktuell: Deutschland in der Stagnation festgefahren – privater Konsum weiter unter dem Niveau von vor der Pandemie. IWH, Konjunktur aktuell, Jg. 12 (1), 2024. Halle (Saale) 2024.