German economic growth prospects are being reevaluated by the President of the Ifo Institute, Clemens Fuest. In a recent statement, Fuest expressed his opinion that the government’s growth target of two percent is achievable, but only if the necessary reforms are implemented.
Fuest’s remarks were based on the assessment of the German Council of Economic Experts, which estimates that, with a focus on investing the additional government funds, the growth rate could even reach an average of 2.3 percent in the period of 2026 to 2030. However, the expert emphasizes that the public investments must be linked to additional reforms.
One of the key risks is the possibility of increased public spending crowding out private investment and driving up prices. To prevent this, private companies that are in the running for public contracts must build up their capacities and engage in competition for these contracts, or else prices will rise. According to Fuest, building up capacities only succeeds with increased labor input. “There needs to be competition and hard work must be rewarded” the Ifo President said. “Improving childcare and reforming the citizen’s allowance can help expand the labor supply.”
Furthermore, the reduction of bureaucracy could free up additional workforce and, as an Ifo study has shown, increase the economic performance by a total of 4.6 percent within eight years.