Ifo cuts German growth forecasts

(Sharecast News) - A leading economic think tank has trimmed its growth forecasts for Germany, it was confirmed on Wednesday, in response to government plans to cut spending. The Institute for Economic Research (Ifo) said it expects GDP to grow by 0.7% this year, down from a previous forecast, made in December, for growth of 0.9%.

The Munich-based institute said it had reduced its outlook on the back of changes to the 2024 federal budget. Germany's Federal Constitutional Court ruled in November that €60bn in unused Covid-era loans could not be reallocated, leading to an overhaul of government spending.

Timo Wollmershauser, Ifo's head of forecasts, said: "According to our estimate, the federal budget now agreed with the budget committee made cutbacks to the tune of some €19bn.

"Companies and households will carry a greater burden or receive less relief, and public spending will be reduced.

"This means the overall scope is roughly in line with what we estimated in our risk scenario for 2024 in December.

"The economic impact is also likely to be of a corresponding magnitude."

The Ifo added it had been "completely unclear" how the court ruling would impact spending or taxation when it drew up its December forecast.

Germany's economy, Europe's largest, shrunk by 0.3% in 2023.