The International Monetary Fund has cut its growth forecast again: Germany's economy will shrink more this year and grow more modestly in 2024. Economists' confidence in the two European industrial countries has weakened, and an Asian country will be the big winner.
Federal Economy Minister Habeck on Wednesday presented the federal government's autumn forecast for the future of the domestic economy: growth of -0.4 percent this year and positive 1.3 percent next year.
However, the International Monetary Fund (IMF) was even more pessimistic than the federal government, and in its World Economic Outlook, released at the start of the annual meeting in Marrakesch, the IMF once again cut its growth forecast for Germany. They forecast in April that the German economy would shrink 0.1 percent this year, revised it down to 0.3 in July, and have now cut it again to -0.5 percent. They also expect Germany's recovery in 2024 to be slower than previously forecast. Next year, German gross domestic product will grow by just 0.9 per cent. They had come in at 1.3 percent, as the federal government had expected.
But Germany's modest 0.9% growth forecast for next year is not the worst, at least not a drag on the industrialised world. And the IMF's forecasts for the UK and Italy are even lower, with the UK growing just 0.6 per cent and Italy 0.7 per cent.
The global economy will slow in 2024
It is worth noting that many other countries will have lower economic growth in 2024 than in 2023. The US and Spain will fall, as will China and Brazil. India will continue to show the greatest growth next year. Economists expect the country to post another 6.3% growth.
Overall, the data show that global growth expectations are converging after years of crisis, but at very low levels. "The global economy has proved surprisingly resilient," International Monetary Fund Managing Director Kristalina Georgiewa said last week. But despite strong demand for services and progress in containing high consumer prices, the pace of global growth remains quite weak, well below the pre-pandemic average of 3.8%.
The IMF assumes global growth of 2.9% in 2024. They attribute the convergence of countries' growth expectations for the coming year to the fact that the recovery process in the services sector is largely complete, as is evident in tourism in France and Spain. Economic growth there is no longer faster than in countries with strong manufacturing sectors such as Germany and China.
"The global economy is faltering, not sprinting," said Pierre-Olivier Gourinchas, the IMF's chief economist. This is due to the sharp rise in interest rates and the fact that inflation has fallen but remains. The fragmentation of the global economy, or the reversal of globalisation, is also to blame.
They do not expect growth rates to return to significantly higher levels in the medium term. Little is expected to change in economic growth through 2028. In Germany, for example, GDP will grow by 0.9% in 2028.
The risk of a banking crisis has receded
Many countries are struggling with high interest rates as central banks pursue tighter monetary policy in the fight against inflation, analysts wrote. The result has been a deterioration in credit conditions in the housing market and an increase in bankruptcies. And the price shock of higher energy prices has yet to be fully absorbed. Labor markets in many industrialized countries remain strong, with shortages in many places, especially in the service sector.
Six months ago, a sharp rise in interest rates caused major problems for banks in the United States and Europe. There are fears of a new financial crisis. "The risk of a banking crisis has diminished since April," wrote Gourinchas, the IMF's chief economist. The bigger risk now lies in China. "China's property crisis is likely to worsen." In order to restore the confidence of the capital market, the rapid restructuring of large-scale project developers is urgent.
The IMF also points out that it is not just oil prices that have been volatile recently. Food prices are also likely to continue to rise and fall as the war between Russia and Ukraine develops further, with a corresponding impact on inflation figures.
Experts now assume that inflation will continue to fall. The IMF expects global inflation to average 4.8% next year, down from 5.9% this year. Prices in Germany also continue to rise, but not as much: prices are expected to rise 6.3 percent in 2023 and 3.5 percent next year.
Economists have called on politicians to address low growth, high interest rates and limited budget flexibility with fundamental reforms, such as in corporate regulation.