Pink Slip, Recession in the Rearview Mirror: economic institutes revise their growth projections upwards
Breakthrough Emerges in Ongoing Saga: Promising Developments Unveiled - Economic entities signaling a positive outlook: Forecasts for global economic growth are revised upward
Woohoo! The RWI and IfW have levied some good news, baby! They've revised their projections for the rest of the year, with the hope of the economy nearing a comeback.
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In the spring, things were looking quite grim. The Essen crew at RWI predicted a 0.1% decline, while the Kiel-based gang at IfW expected zero growth for 2023. But now, the proverbial light at the end of the tunnel is visibile, as even the ifo Institute, based in Munich, upped their projection for this year from a modest 0.8% growth to an impressive 1.5%!
The RWI and IfW are also expecting a bright outlook for 2024, though they urge the government not to rest on its laurels. "The crisis of the German economy has hit rock bottom in the winter half of 2023," Ifo's chief economist, Timo Wollmershäuser, stated. He went on to hint that the recovery might have already begun in the second half of last year. RWI's chief economist, Torsten Schmidt, agreed, and the IfW's revised "sunnier" prediction mirrors this optimism.
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Private consumption and investments in Germany have been on the uptick, with exports making a particularly strong contribution. According to the institutes, this had largely been due to a surge in exports to the US, which many importers hastened to stockpile before anticipated high tariffs under President Trump. However, the US trade policies pose risks to the continued growth, and the institutes' revised forecasts have grown cautious due to the challenges posed by Trump's tariffs.
Economists agree that the federal government's special funds for investments have been a major factor in the improved situation. But they warn that mere intentions need to be followed up with real action. Experts also foresee potential risk from ongoing trade disputes with the US, which could lead to another recession.
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Chief economists have been vocal about their thoughts on additional reforms needed for the German economy, such as abolishing tax incentives for early retirement and the marriage split, increasing property taxes, and reducing tax exceptions like capital gains and inheritance taxes. However, the new coalition government has not committed to implementing these reforms as of now. The focus is currently on measures to improve employment readiness in Germany, like cutting unemployment benefits, offering tax incentives for overtime, and increasing flexibility in working hours.
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The Organisation for Economic Co-operation and Development (OECD) has also hopped onto the growth prediction bandwagon. They've forecasted an economic growth of 0.4% for last year and 1.2% for 2024 in their report on Germany. The OECD believes that the German economy has shown resilience, but it needs reforms to boost business dynamism and foster investment activity. By addressing hindrances like skilled labor shortages, high administrative burdens, and regulatory barriers to competition through simplified regulations and administrative processes, fostering regional development, implementing structural and fiscal reforms, reducing the tax burden on labor, and addressing energy costs, the German economy can expect a prosperous future.
The revised employment policy by the government could potentially counteract any risks posed by US trade policies, as experts suggest focusing on measures to improve employment readiness in Germany, such as cutting unemployment benefits, offering tax incentives for overtime, and increasing flexibility in working hours.
The Organisation for Economic Co-operation and Development (OECD) has emphasized the need for reforms to boost business dynamism and foster investment activity in Germany, suggesting simplified regulations and administrative processes, favorable energy policies, and structural and fiscal reforms to address hindrances like skilled labor shortages and regulatory barriers to competition.
