Ifo Economic Forecast 2004: Recovery has begun

At a press conference on December 19, the Ifo Institute presented its economic forecast for 2004. The economic outlook of the Federal Republic of Germany has not been this favourable in a long time. According to the Ifo forecast real GDP will increase in Germany by 1.8% in 2004. Of this growth, 0.2 percentage points will stem from the partial, pre-scheduled implementation of the third stage of the 2000 tax reform, which in comparison to the initial plan will hardly have a weaker economic effect because about 8 billion of 9 billion euro will not be financed by cuts in government spending or by increases in other taxes. About 0.5 percentage points of GDP growth will come from the fact that in 2004 there will be an average of 3.3 more working days than in 2003. Growing demand will result in the use of these additional working days for increased production. The situation on the labour market remains precarious. In view of the decline in job openings until recently, employment is expected to continue falling in the early months of 2004, albeit not so fast as recently. To be sure, labour market policy is supporting the employment of people who are not eligible for wage replacement benefits by the promotion of self employment (Ich AG), the establishment of Personal Service Agencies and the promotion of mini jobs and midi jobs. Nonetheless, a gradual increase of seasonally adjusted employment figures cannot be expected until the middle of 2004 when the economic recovery will be on solid ground. This will not prevent that, on average for the year, another reduction of employment of about 170,000 people will be recorded. In 2004, average annual unemployment will amount to 4.3 million, which is an unemployment rate of 10.2%. With the public finances, no lasting improvement is in sight.