The International Monetary Fund is again lowering its growth forecast for Germany. Economists also predict that the global economy will develop “poorly” overall in the next few years. There are three points in particular that need to be addressed by politicians and central banks.
Christian Lindner (FDP) has known it no different since he became finance minister. In the next few days he will again have to answer uncomfortable questions about weak German economic growth when he meets with his counterparts and central bank heads at the autumn meeting of the International Monetary Fund (IMF) – as he did in 2022 and 2023.
This year, too, the experts from the organization for the promotion of global financial stability are withdrawing their already low growth expectations for the German economy at the beginning of the autumn meeting. They are lowering their forecast for the coming year significantly compared to the July outlook: instead of 1.3 percent, they only expect Germany to achieve an increase of 0.8 percent – a decline of half a percentage point. For no other major industrialized country did they correct the value so sharply downwards within three months.
In its autumn forecast in September, the federal government had forecast an increase of 1.1 percent for the supposed year of the next federal election. Economics Minister Robert Habeck (Greens) announced the second recession year in a row for 2024, with a minus of 0.2 percent. The IMF economists don’t go that deep. They are currently expecting zero growth this year. The number 0.0 does not change the fact that Germany is also at the bottom of the major economic nations on the forecast list for 2024.
The IMF economists justify their pessimistic view in the World Economic Outlook with the “persistent weakness of the manufacturing sector”. On the plus side, just like other European countries, there are higher wage agreements and falling interest rates. This could lead to stronger consumer demand. Last week, the European Central Bank cut its key interest rate for the third time since the summer.
Economic development is particularly slow in Germany. But it is by no means the case that jumps in growth are expected in the rest of Europe. Of the four major economies on the continent, Spain is ahead with a plus of 2.1 percent. Things look somewhat better in other regions of the world, such as India (6.5 percent) and China (4.5 percent). The gross domestic product of the United States is expected to increase by 2.2 percent instead of 1.9 percent – at least.
Overall, the International Monetary Fund assumes that the global economy is facing difficult years. “Despite the good news on inflation, downside risks are increasing and now dominate the outlook,” said IMF chief economist Pierre-Olivier Gourinchas, commenting on the outlook. He describes the biggest risks: an escalation of regional conflicts, especially in the Middle East, could put a strain on the raw materials markets, a change to undesirable trade and industrial policy measures could put pressure on production, and central banks leave interest rates high for too long.
“Unfortunately, the growth prospects for the next five years, at 3.1 percent, are lower than they have been in decades,” writes Gourinchas. The value for global economic growth for 2025 was reduced slightly to 3.2 percent from the previous 3.3 percent. Last week, IMF head Kristalina Georgiewa had already spoken of a slow phase that the global economy was facing. Growth will not be enough to combat poverty and create enough new jobs.
The IMF has great hope for artificial intelligence (AI). “IMF research shows that AI – if used correctly – has the potential to increase global growth by up to 0.8 percentage points,” Georgieva said. In order to steer development along an orderly path, common regulatory and ethical standards are important, she appealed to the 191 member countries of the IMF.
Economists are calling for more financial buffers and less debt
In the short term, chief economist Gourinchas sees three main tasks that need to be addressed in order to at least have an “urgently needed economic breathing space” after the crises at the beginning of the decade. First, central banks would have to continue the rate-cutting cycle they have already begun, especially now that labor markets “in many advanced economies are showing signs of slowing and rising unemployment rates,” he said.
In his view, the second pivotal point is financial policy. “After years of loose fiscal policies in many countries, it is now time to stabilize debt dynamics and rebuild urgently needed fiscal buffers,” writes Gourinchas. The reduction in key interest rates will bring some relief to the states’ budgets, as the financing costs of the debt will fall. But this won’t be enough.
The third and, according to the IMF, most difficult step is the implementation of growth-enhancing reforms. Much more needs to be done to improve growth prospects and increase productivity. There is no other way to overcome the major challenges such as aging society, dealing with climate change and improving the living conditions of the most vulnerable.
Finance Minister Lindner will travel back to Berlin from Washington at the end of the week with a well-filled homework book. But he doesn’t know any other way.
Karsten Seibel is a business editor in Berlin. Among other things, he reports on: household and Tax policy.
