Ifo Economic Forecast 2008/2009: Upswing comes to a halt

In the wake of the US real-estate crisis and the turbulence on the international financial markets, the dynamics of world economic activity have weakened. The survey-based Ifo World Economic Climate worsened considerably in the second quarter of 2008, the indicator falling to its lowest level in more than six years. The decline resulted especially from the more unfavourable appraisals of the current economic situation, but also the expectations for the next six months were revised downwards. The worsening of the Ifo World Economic Climate was particularly marked in North America and Western Europe. The strongest decline in the climate indicator, as in the previous survey, was in the United States. The expansion of the world economy will decelerate perceptibly in the forecast period. The rise in GDP will slow since the apex of the economic cycle seems to have been reached. In addition, the persisting insecurity on the financial markets, the negative asset effects of falling house and share prices, high inflation as well as the recent strong hikes in oil prices are having an increasingly retarding effect. The German economy experienced a vigorous start into the new year. According to available official statistics, aggregate production increased in the first quarter of 2008, seasonally and calendar adjusted, by 1.5 percent over the previous quarter. After the strong expansion of aggregate output in the first quarter of 2008, a slight decrease in real GDP is expected for the second quarter. On average for the first half of 2008, this results in GDP growth of 1.5% in comparison to the second half of 2007, seasonally and calendar adjusted; in comparison to the previous year, growth amounts to 2.7%.