Germany's DIW economic institute said it now expects weaker GDP growth in the next two years after the government cut industry aid in its revised 2024 budget.
The DIW Institute predicts that the economy will contract by 0.3% this year, but then expand by 0.6% in 2024 (previous forecast: +1.2%) and by 1.0% in 2025 (previous forecast: +1.2%).
"The economy will return to growth on the back of lower inflation, as well as significant wage growth, which will have a positive impact on purchasing power. However, budget cuts to the country's climate and transformation fund would dampen growth, by 0.3% next year and 0.2% in 2025," the DIW Institute said, adding that yesterday it was agreed to reduce this fund by 12 billion euros in 2024 and by 45 billion euros in budget planning up to 2027.
Yesterday, Germany's IfW institute also warned that the latest decision of the German Constitutional Court (which ruled that 60 billion euros in unused pandemic debt could not be moved to the climate and transformation fund) would reduce overall GDP growth by 0.3% in 2024. According to IfW Institute forecasts, the German economy will expand by 0.9% next year (0.4% lower than the last forecast presented in September) and by 1.2% in 2025 (previous forecast: +1.5%).