Ifo flags structural risks as German economy faces subdued 0.4% growth next year

Germany’s economy is forecast to contract by -0.1% in 2024, according to the Ifo Institute. The economy has been “treading water for five years”, with growth stalled amid structural challenges.

The institute presents two possible trajectories for 2025: sluggish growth of just 0.4% if structural issues persist, or a recovery to 1.1% if economic policy reforms support industrial revival.

Timo Wollmershäuser, Head of Forecasts at Ifo, stated, “It is not yet clear whether the current phase of stagnation is a temporary weakness or one that is permanent and hence a painful change in the economy.”

He noted that Germany’s export sector, once a key driver of growth, has become “increasingly decoupled from global economic development,” with competitiveness eroding, particularly in industrial goods outside Europe.

In a pessimistic scenario, this weakness could lead to “creeping deindustrialization,” while an optimistic outcome would depend on supportive policies enabling manufacturing to expand production capacities. Such measures could, in turn, boost private consumption and reduce the high savings rate, providing further stimulus to the economy.

Full ifo Economic Forecast Winter 2024 here.