Germany’s major economic research institutes have downgraded their GDP forecast, citing low domestic demand and high gas and electricity prices affecting exports. These institutes released their six-monthly “collective diagnosis” of the German economy, revising the growth forecast from 1.3% to 0.1%. The report emphasized the importance of consumers’ purchasing power in improving the economic outlook.
Experts have described Germany’s economic situation as ailing, with structural factors and sluggish overall economic development contributing to its weakness. Despite a potential recovery in the spring, the report suggested that the overall momentum might not be significant.
The lack of increase in domestic demand, partly due to high gas and electricity prices, is one of the factors impacting Germany’s economy. These prices have caused a loss of competitiveness for energy-intensive goods, which are a strength of Germany’s exports. Additionally, the government’s strict fiscal policy has limited new debt issuance due to provisions for the constitutional debt brake.
In 2020, Germany was notably the worst performing major economy in the world. The forecast for 2021 predicted growth to pick up to 1.4%. This “diagnosis” was a collaborative effort from five prestigious German economic research institutes: DIW in Berlin, IfW in Kiel, IWH in Halle, RWI in Essen and Ifo in Munich.
