Germany’s independent council of economic advisors has revised upward its growth forecast for the current year, signaling a tentative return to positive economic performance after a prolonged period of stagnation. The Spring Report, unveiled in Berlin this week, projects a modest 0.2% real GDP growth for 2024 compared to the prior year, marking the first expansion since 2022. This represents a noticeable shift from previous expectations of stagnant growth.
However, the revised outlook is tempered by a slight reduction in the growth projection for 2026, now estimated at 0.9% compared to the previously anticipated 1.0%. The report attributes the near-term growth primarily to increased government spending and a calendar-driven effect of having a higher number of working days.
Monika Schnitzer, Chair of the Council of Economic Experts, underscored the urgency for Germany to forge new growth and security policy strategies. “Given the current challenges, Germany must develop new growth and security policy perspectives” she stated, emphasizing the importance of capitalizing on opportunities arising from the Special Asset for Infrastructure and Climate Neutrality (SVIK).
The Council’s critique of the SVIK implementation has drawn significant attention. The current planning for the asset’s disbursement appears largely geared towards shifting funds within the budget and financing consumer spending, resulting in a minimal impact on GDP. The advisors argue that a more significant boost would be achieved by allocating the funds entirely to supplementary expenditure and investments.
While the recently approved corporate tax cuts are expected to moderately stimulate investment and GDP growth, the Council suggests a more neutral approach to taxation could yield a considerably larger effect. The report further advocates for strengthening private asset accumulation, particularly for retirement planning, within Germany. Reforming the taxation of inheritances and gifts to align more closely with the ability-to-pay principle is also recommended, signaling a potential shift towards a more equitable fiscal landscape. The overall message points to a need for bolder reforms and a more strategic deployment of resources to ensure sustainable and equitable economic progress.
