Germany's economic growth forecast at 0.9% for 2024

The need for budget consolidation measures has emerged following a decision by Germany’s Federal Constitutional Court in November 2023. The court ruled that the government's allocation of untapped credit, originally earmarked for the COVID-19 pandemic, to its Climate and Transformation Fund was unconstitutional and therefore invalid.

During the preparation of the ifo Economic Forecast in December, there was significant uncertainty regarding the extent to which expenditure would be reduced or taxes increased. Consequently, the baseline forecast at that time assumed that all fiscal policy measures planned up to that point would be implemented, despite the emerging budget gap, as per the ifo Institute.

However, it was also anticipated that additional consolidation efforts would be required to bridge this gap. As a result, the forecast included a risk scenario estimating the impact on the German economy of a comprehensive package of measures amounting to €20 billion.

“Now that the German parliament’s budget committee has agreed on the federal budget, we estimate that it passed additional savings of just under €19 billion,” said Timo Wollmershauser, head of forecasts at ifo. “Companies and households will carry a greater burden or receive less relief, and government spending will be cut. That means the overall scope is roughly in line with what we estimated in our risk scenario for 2024 in December. The economic impact is also likely to be of a corresponding magnitude.”

Fibre2Fashion News Desk (DP)