German economy seen stagnating this year, Ifo institute says

The German economy is expected to stagnate this year, the Ifo institute said on Thursday, cutting its previous forecast of 0.4 per cent growth.

"The German economy is stuck and is bobbing around in the doldrums, while other countries are feeling the upswing," said Ifo head of economic research Timo Wollmershaeuser.

In its updated forecasts, Ifo said it expects the economy to grow by 0.9 per cent next year, lower than the 1.5 per cent previously forecast.

In 2026, gross domestic product is likely to increase by 1.5 per cent, according to the economic institute.

Inflation has continued to fall this year and is expected at 2.2 per cent, down from 5.9 per cent in the previous year. It will continue its downward trajectory, falling to 2.0 per cent in 2025 and 1.9 per cent in 2026, according to Ifo's forecasts.

Despite easing inflation, consumption will remain weak, according to the economic institute.

"The order situation is poor and the gains in purchasing power are not leading to increased consumption, but to higher savings because people are insecure," Wollmershaeuser said.

The savings rate is now at 11.3 per cent, significantly higher than the 10-year average of 10.1 per cent before the pandemic.

Unemployment is likely to go up due to the economic weakness, rising to 6.0 per cent in 2024 from 5.7 per cent in 2023. It will then fall to 5.8 per cent next year and reach 5.3 per cent in 2026, Ifo said.