According to the Kiel Institute for the World Economy (IfW), the German economy’s growth prospects in the medium term are expected to be weak. The IfW predicts a noticeable decline in the production potential of the domestic economy in the coming years, leading to average annual growth rates of only 0.4%, which is less than a third of the long-term average rate. The institute attributes these limited growth prospects to an aging society and the resulting loss of labor potential. Stefan Kooths, head of economic research at the IfW, emphasizes the importance of strengthening factors that are within Germany’s control, such as education, infrastructure, bureaucracy, and taxes, in order to attract foreign skilled workers and counterbalance the demographic challenges.
The number of people available for the labor market is expected to stagnate at 47.1 million this year and next year. However, the IfW forecasts indicate that from 2025 onwards, more people will be leaving the labor force than entering it, with an estimated 200,000 individuals per year. Kooths points out that Germany’s demographic changes are not unique and are impacting many economies worldwide. He suggests that in order to address this challenge, a growth-oriented policy that attracts qualified immigration and investment is crucial, as the competition for global talent intensifies.
The Kiel Institute expects a decline in Germany’s gross domestic product (GDP) of 0.5% for the current year, surpassing the previously predicted decline of 0.3%. However, the institute forecasts a 1.3% growth rate in 2024. These projections highlight the need for proactive measures to boost the German economy and address the challenges posed by an aging population and limited labor potential.