German economic recovery in sight: Will downturn end shortly? - German Recovery Underway
Let's dive right in!
Germany's economy, battered by soaring energy costs and the trade spat with President Donald Trump, is hanging on by a thread. But there's a glimmer of hope. Consumers are gradually loosening their purses after years of inflation, lending a much-needed boost to the economy.
That's according to the latest economic outlook from the Organisation for Economic Co-operation and Development (OECD) in Paris. Is Germany's economy about to make a comeback?
A Struggling Giant: Germany Amid the Worst Performers
Trade disputes, expensive energy, and numerous hurdles have made breathing room scarce for Germany's economy. The OECD edges its forecast to just 0.4% growth, placing Germany alongside Austria and Norway, leading among the 54 economies assessed.
Trade barriers and uncertainty have skyrocketed in recent months, says OECD chief economist Álvaro Pereira. "A cloud of uncertainty hangs over the world’s economies."
Noteworthy, the OECD's forecasts appear relatively optimistic compared to the more pessimistic outlooks from both the EU Commission and Germany's "wise men," who anticipate the economy to flatline this year. The Institute for Macroeconomic and Economic Research of the Hans-Boeckler-Foundation even predicted a third consecutive year of recession in March — a first for Germany's Federal Republic.
Consumer Spending: The Economic Game-Changer
The outlook for 2023 is more promising: The OECD now anticipates a 1.2% growth, in line with the estimates of "wise men" and the EU Commission. This uptick is largely due to the planned multi-billion-euro investments by the federal government, which weren't fully factored into the OECD's previous projections.
"The fiscal measures of the new federal government will provide a significant impulse," says Timo Wollmershäuser, head of economic research and forecasting at the Ifo Institute. Combined with measures announced in the coalition agreement, they are expected to swell real GDP by a total of 0.7% this and next year, with the main effects felt in 2026.
Geraldine Dany-Knedlik, head of the DIW's macroeconomic department, believes the OECD's forecast does not yet account for the noticeable impact of investments next year. "This may seem understated, given that some projects are already underway in municipalities."
Surprisingly Resilient Consumers - Are They the Key to Recovery?
The OECD attributes the boost in spending to consumers regaining their spending power following years of inflation. Germany has grappled with weak consumption for quite some time. Consumers have been holding onto their money as prices skyrocketed due to the Ukraine war. However, even with deflated inflation and wages on the rise, consumer spending hasn't picked up noticeably — yet.
But anticipation of a revival is in the air.
Risks for Consumers - Will Inflation Rear its Head Again?
The OECD experts admonish the reemergence of inflation, fueled by increased demand and labor shortages. To address this, they argue that attracting qualified foreign workers should be a priority.
- OECD
- International Economic Institutions
- Consumer Spending
- Inflation
- US President
- Donald Trump
- Trade Dispute
- Paris
- Federal Government
- EU Commission
- Germany
- Global Uncertainty
- Crisis
- Recession
- Austria
- Norway
- Head
- Alvaro Pereira
- Institute for Macroeconomics and Economic Research
Insights:
- Economic experts foresee Germany's economy entering a period of stagnation or contraction in 2025, with the challenging economic landscape mainly attributed to domestic issues, US trade policies, global economic uncertainties, and low investment levels 15
- Global economic uncertainties, primarily rooted in ongoing trade disputes and instability in the USA, pose significant challenges to Germany's recovery 2
- There are projections of moderate growth in 2026, with the European Commission forecasting a 1.1% GDP growth rate for Germany 4. However, predictions for future growth are less optimistic compared to earlier forecasts.
- The new federal government's fiscal policy will provide positive impetus for the economy, with effects primarily felt in 2026, providing hope for the future 5
- The Organization for Economic Co-operation and Development (OECD) suggests that Germany's economy might witness a resurgence due to increased consumer spending, a result of reduced inflation and growing wages.
- In order to address the potential reemergence of inflation and labor shortages, the OECD emphasizes the importance of attracting qualified foreign workers as part of employment policy.
