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German institutes cut 2024 GDP forecast on uncertainty

by Wanda Rich
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2023 12 14T112623Z 1 LYNXMPEJBD0FE RTROPTP 4 FINANCE TRADING FEES

German institutes cut 2024 GDP forecast on uncertainty

BERLIN (Reuters) – Three leading German economic institutes cut their 2024 economic growth forecasts on Thursday, saying consumer and company uncertainty, exacerbated by a weeks-long government budget crisis, was delaying recovery.

The Ifo, RWI and DIW institutes all cut their forecasts by between 0.3 and 0.6 percentage points from their previous expectations published in September.

Ifo now expects Europe’s largest economy to grow by 0.9% next year instead of 1.4%, while RWI cut its forecast to 0.8% from 1.1% and DIW dropped its prediction to 0.6% from 1.2%.

“Uncertainty is currently delaying the recovery, as it increases consumers’ propensity to save and reduces the willingness of companies and private households to invest,” said Ifo’s head of forecasts Timo Wollmershaeuser.

For 2025, Ifo slightly raised its forecast, saying the economy is on the road to recovery as purchasing power returns, demand is set to recover and high interest rates retreat.

DIW and RWI, on the other hand, revised down their 2025 outlooks.

Uncertainty around the government’s finances abated somewhat on Wednesday after Germany’s coalition parties reached a deal that reduces the 2024 budget by cutting subsidies for activities which damage the climate, spending in some ministries and federal grants.

Ifo president Clemens Fuest praised the agreement as a step in the right direction but said questions remain unanswered, particularly about whether enough investment can still take place.

“The agreement on the 2024 budget is a lazy compromise and a huge missed opportunity to make Germany fit for the future again,” said DIW president Marcel Fratzscher.

The DIW institute said budget cuts to the country’s climate and transformation fund, which is intended to assist companies with the costly transition to greener production, would dampen growth, by 0.3 percentage points in 2024 and 0.2 percentage points in 2025.

($1 = 0.9271 euros)

(Reporting by Miranda Murray and Maria Martinez, Editing by Rachel More, Kirsten Donovan, Alexandra Hudson)