Leading German economic research institutes are cautioning policymakers against misinterpreting a newly released growth forecast for the upcoming year. Experts emphasize that the projected stimulation of economic activity does not represent fundamentally strengthened growth forces. Instead, the projected growth is heavily reliant on substantial borrowing by the public sector.
One economist used a stark analogy to illustrate the point, comparing the situation to someone temporarily alleviated by a short-term “shot” – providing an initial feeling of improved well-being but not indicating a genuine recovery or a path towards long-term health. This suggests that current economic policies should not be perceived as validated by the forecast.
The projection indicates a concerning decline in the growth rate to a mere 0.2 percent by the end of the decade, based on the assumption of a lack of structural reforms designed to strengthen the German economy’s long-term competitiveness. Researchers state that policymakers cannot be satisfied with these figures.
Despite these concerns, there is cautious optimism regarding potential positive impacts from trade agreements. Expanding into new economic regions globally is considered crucial, with the Mercosur agreement representing a key opportunity. Progress in these negotiations is viewed favorably. The EU’s trade agreement with Indonesia is also highlighted as a positive step, signifying a shift away from linking such agreements with extensive, restrictive standards.
The certainty surrounding the 1.3 percent growth forecast for the German economy next year remains uncertain. Responding to inquiries regarding the potential impact of expanded borrowing rules, an economist from the DIW institute clarified that the forecast is, by nature, a projection – an expert assessment of potential outcomes. It incorporates significant uncertainty, particularly concerning the effects of government stimulus and potential capital outflows.