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The German economy continues to stagnate. After it appeared to finally be growing at the start of 2024, it experienced a slight setback in the second quarter. Although incomes are rising and inflation is now near the two-percent target, people in Germany are saving their money. As investments and exports faltered due to the sluggish industrial sector, the upturn has been delayed for the time being. Overall economic output is likely to stagnate in 2024, but it will likely pick up at the end of the year; growth of 0.9 and 1.4 percent is expected in 2025 and 2026, respectively. Private consumption, which will increase more slowly than expected but still provide a stimulating effect, will primarily support this growth. As interest rates continue to fall worldwide, foreign trade and investments are also supporting growth. The global economy has returned to its recovery path, but expanded more weakly in the second quarter compared to the first. Growth in China in particular has stalled somewhat, and there are also signs of an upcoming economic slowdown in the United States. Following growth of 3.8 percent in 2024, the global economy is expected to expand by only 3.5 percent in 2025, but develop more dynamically again in 2026. [ABSTRACT FROM AUTHOR]

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The German economy began recovering at the beginning of 2024 and has developed better than initially expected. A sharp rise in construction investment, albeit more of a flash in the pan as a result of mild winter weather, along with strong goods exports helped the economy onto its recovery path and masked the disappointing development of private consumption, which sank unexpectedly. However, consumer sentiment has since brightened considerably: Following the recent special payments, employees in many sectors are now earning more on a permanent basis due to pay raises, which increases income security. In conjunction with the inflation rate now being stable at below the three-percent threshold, real wages are rising significantly. Added to this is the turnaround in interest rates initiated by the European Central Bank, which is making saving less attractive and loans more affordable. The UEFA European Men's Football Championship, which is being held in Germany this year, is also likely to boost consumption, albeit slightly. In addition to private consumption, foreign trade will prove to be the second mainstay of the German economy in the forecast period. On the one hand, imports are increasing as the domestic economy becomes stronger. On the other hand, the German export industry will also experience a significant boost, as industrial production is likely to pick up worldwide. Due to the high share of intermediate products and investment goods, exports "made in Germany" are particularly dependent on the global industry's economic situation. In Germany, too, industrial companies will begin investing more in their capacities from 2025 at the latest. Construction investment will then also rise again. Overall, the outlook is somewhat more positive than it was in the spring: Instead of stagnating, DIW Berlin now expects the German economy to grow by 0.3 percent in 2024 and by 1.3 percent in 2025. One risk factor for the forecast is that the full extent of the damage from the flooding in southern Germany is still unclear. In some places, production capacities could remain impaired for longer than expected. At the same time, it is also conceivable that repair and reconstruction work could increase economic output. Overall, however, the effects in one way or the other are likely to remain manageable. In addition, the tug-of-war over the next federal budget could once again become a factor contributing to uncertainty, possibly even more so than was already to be expected after the results of the EU elections in Germany. The global economy will also gain some momentum over the forecast period. The euro area is finally overcoming its weak phase for good and international trade is picking up speed. The interest rate turnaround in the major advanced economies will likely have a positive effect on residential construction and corporate investments from the second half of 2024. Overall, the global economy is expected to grow by 3.7 percent in 2024 and by 3.6 percent in 2025. [ABSTRACT FROM AUTHOR]

Copyright of Deutsches Institut für Wirtschaftsforschung: DIW-Wochenbericht is the property of DIW Berlin and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

The German economy will likely contract in the first quarter of 2024 due to still heightened inflation and weak demand, which was already weighing on German economic output in 2023. Inflation, which is falling in both Germany and the euro area overall, is expected to return close to the European Central Bank's two-percent target, suggesting that a turnaround in interest rates can be expected in early summer. Better financing conditions and the slowdown in price momentum are likely to somewhat boost both private consumption as well as corporate investments over the course of 2024. Nevertheless, there is currently still a great deal of uncertainty, particular in regard to the future economic policy environment, which is causing households and companies to remain cautious in Germany. In addition, fiscal policy stimuli as well as foreign demand are lacking. German GDP will virtually stagnate and, carried by private consumption and public investments in equipment, increase more markedly by 1.2 percent in 2025. The global economy will continue to develop more robustly than Germany; it is projected to increase by 3.5 percent in both 2024 and 2025, which should gradually strengthen German exports. [ABSTRACT FROM AUTHOR]

Copyright of Deutsches Institut für Wirtschaftsforschung: DIW-Wochenbericht is the property of DIW Berlin and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Copyright of Deutsches Institut für Wirtschaftsforschung: DIW-Wochenbericht is the property of DIW Berlin and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Copyright of Deutsches Institut für Wirtschaftsforschung: DIW-Wochenbericht is the property of DIW Berlin and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)