According to the International Monetary Fund (IMF), the outlook for the German economy continues to deteriorate. In Washington on Tuesday, the IMF forecast economic growth of 0.2 percent for the current year. In January, the IMF expected a 0.5 percent increase. However, the Monetary Fund slightly improved its forecast for the global economy as a whole: from 3.1 percent to 3.2 percent. “The global economy remains remarkably resilient, growth remains stable and inflation is back on target,” he said.
The IMF lowers its forecasts for Germany
For the Federal Republic of Germany, the IMF forecasts the weakest growth this year of all the major industrialized countries of the Western G7. By 2025, however, the Fund expects the German economy to grow again by 1.3 percent. Italy would be at the bottom of the G7 countries with only 0.7 percent. But the IMF has also lowered its 2025 forecasts for the German economy by 0.3 percentage points compared to January. This is due to persistent weakness in consumer sentiment. In the long term, the fund is particularly concerned about structural problems in Germany, such as a declining workforce and obstacles to investment.
Leading economic research institutes predict even worse growth for Germany this year, at 0.1 percent. The prospects for next year are therefore slightly better than the fund's, at 1.4 percent.
Despite “gloomy predictions,” the outlook for the global economy remains stable
For the current year, the IMF forecasts 3.2 percent growth for the global economy in 2025. Despite many “bleak predictions,” the world has been saved from recession, according to IMF chief economist Pierre -Oliver Gourinchas. There have been numerous challenges in recent years: disruptions to supply chains due to the coronavirus pandemic, a global energy and food crisis due to Russia's war of aggression in Ukraine, a significant rise in inflation, and in response , a strict monetary policy. with interest rate increases.
According to the IMF, it is positive that high inflation has not triggered an uncontrolled spiral of wages and prices. However, global economic growth is historically weak. This is due to temporary factors such as higher borrowing costs or the current consequences of the war in Ukraine or the pandemic. However, given the high level of public debt in many economies, tax increases and spending cuts could further weaken economic activity.
IMF issues warning on inflation targeting
For 2024, the IMF expects global inflation to average 5.9 percent, 0.1 percentage point higher than forecast in January. Next year it should be 4.5 percent (January: 4.4 percent). The IMF has a much more positive outlook for industrialized nations, with an inflation rate of 2 percent on average over the next year. “It is somewhat worrying that progress toward achieving inflation targets has stalled somewhat since the beginning of the year,” writes IMF economist Gourinchas. This may be a temporary setback, but there are reasons to remain vigilant.
The fund sees risks that could slow growth. Further price increases due to geopolitical tensions could lead to permanently higher key interest rates. In the fight against rising consumer prices, central banks are raising interest rates to curb demand. If interest rates rise, individuals and companies will have to spend more on loans. Growth is slowing, businesses cannot pass on higher prices indefinitely, and, ideally, the inflation rate is falling.
The IMF also warns that increasing geopolitical fragmentation in supply chains could result in both lower growth and higher inflation. According to the Fund, if growth in China stagnates permanently, this could also weaken trading partners. Another worrying fact is the growing gap between many poorer countries and the rest of the world.