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German economy faces meagre growth in medium term – IfW

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– Growth prospects for the German economy will remain meagre in the medium term, the Kiel Institute for the World Economy (IfW) said on Friday.

The production potential of the domestic economy could decline noticeably in the next few years and then only allow for average annual growth rates of 0.4%, according to the IfW’s medium-term forecasts. That would be less than a third of the long-term average growth rate of 1.3%.

An ageing society and thus the loss of labour potential are weighing on growth prospects, according to the economic institute.

“Growth is not destiny,” said IfW head of economic research Stefan Kooths. “What we need to do now in terms of economic policy is to strengthen those factors that are in our own hands: education, infrastructure, bureaucracy, taxes- and thus also become more attractive for foreign skilled workers.”

This year and next year, the number of people available to the labour market is expected to stagnate at 47.1 million. From 2025 onwards, more people are likely to leave the labour force than enter it – about 200,000 per year, according to the IfW forecasts.

“Germany is not alone in its demographic development,” said Kooths, adding that demographic changes are affecting large parts of the global economy.

“The competition for the world’s talent is thus becoming tougher and the most important is a growth-boosting policy that makes the location more attractive for qualified immigration and investment,” said Kooths.

For the current year, the Kiel Institute expects a decline in gross domestic product of 0.5%, more than the 0.3% decline expected in summer. This will be followed by growth of 1.3% in 2024, it forecasts.

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