According to a new forecast from the economic research institute IMK, the German economy will shrink by 0.5 percent this year. The Institute for Macroeconomics and Economic Research (IMK) of the trade union-affiliated Hans Böckler Foundation said 0.7 percent growth is expected for 2024.

“The German economy, which has been weakened by the energy price shocks, will not really get going in the coming months because high interest rates and a subdued global economy are slowing things down,” it said. With falling inflation and stronger wage increases, private consumption will recover from the third quarter of 2023. “But this positive development comes so late that it can only slightly alleviate the recession in 2023 as a whole, not prevent it.”

A week ago, the Organization for Economic Cooperation and Development (OECD) forecast a decline of 0.2 percent in Germany in 2023 and growth of 0.9 percent in 2024. This Thursday in Berlin, the four economic research institutes Ifo, IfW, IWH and RWI want to present their joint autumn report.

Recommendation: Continue to hedge electricity prices

According to IMK, the inflation rate will be 6.0 percent on average in 2023 (2022: 6.9 percent). “In 2024, the inflation rate is likely to be relatively close to the European Central Bank’s (ECB) inflation target again, at an average of 2.4 percent,” it continued. Against this background, the institute recommended a pause in the ECB’s key interest rates and greater government support for the socio-ecological transformation of the economy. The focus should be on hedging against continued high and fluctuating electricity prices.

The economic researchers expect that incomes will benefit from significantly higher collective wage agreements than in previous years. In 2023, disposable income is likely to decline slightly again after adjusting for prices. “According to the current forecast, they will grow noticeably next year.” Private consumption is developing according to the same pattern. The continuously growing investments in equipment also had a stabilizing effect on the economy. The reasons for this include the ecological transformation of the economy and higher government spending on armaments.