FRANKFURT, Oct. 7 (Xinhua) -- The German government is set to downgrade its economic forecast and expects it to contract further as recent data point to a delayed economic recovery.
The Ministry for Economic Affairs and Climate Action is to revise its growth forecast and expects the economy to shrink by 0.2 percent, down from its previous forecast of 0.3 percent growth, leading German daily Sueddeutsche Zeitung reported on Sunday.
The report attributed the sluggish recovery to a slowdown of industrial activities, weak exports and high energy costs.
The German economy shrank 0.1 percent in the second quarter this year, following an increase of 0.2 percent in the first quarter. It was previously estimated that the momentum of economic recovery could pick up in the second half of this year.
The estimation has failed to materialize according to the monthly report about the economy published by the German Central Bank, Bundesbank, last month.
The central bank warned of stagnation or decline of real gross domestic product in the third quarter. "The German economy continues to be weak," it said.
Weak domestic demand played a leading role in dragging down the recovery. While high financing costs dampened demand for industrial goods and production plans, private consumption remained weak as consumers chose to save more despite the rise of real income, according to the report.
New orders in the manufacturing sector went down by 5.8 percent in August, compared to the previous month, provisional figures published by the Federal Statistical Office showed on Monday.
Business sentiment among German companies remains gloomy. The ifo Business Climate Index, an indicator of business confidence in Germany, plunged to 85.4 points in September, the fourth decline in a row.
The confidence decline was ubiquitous across the board and the manufacturing index fell to its lowest level since June 2020. "The German economy is coming under ever-increasing pressure," said a statement published by the Munich-based economic think tank.
Despite the pessimism about the 2024 economic growth, the German Ministry for Economic Affairs and Climate Action appears to be upbeat about 2025 and beyond. The ministry estimates the economy to grow by 1.1 percent in 2025 and 1.6 percent in 2026, according to the Sueddeutsche Zeitung.
Economy Minister Robert Habeck was quoted by the German newspaper as saying that there will be significantly stronger growth from 2025 if the growth measures by the government are implemented.
The measures, specifically referred to as the Growth Initiative, encompass a wide array of stimulating policies focusing on the shortage of skilled workers, aging population and bureaucracy.
"The 49 measures in different areas are designed to sustainably strengthen Germany as a business hub and its competitiveness, to sustainably safeguard our prosperity by ensuring good jobs and successful decarbonization," the government said in a statement.
Meanwhile, the German government aims to encourage private investment by improving the depreciation of capital goods, increasing research subsidies, providing more subsidized loans and strengthening Germany as a financial center.
"The crisis is first and foremost a structural crisis," said an economic forecast published by ifo last month.
The institute also lowered its forecast for economic growth, foreseeing the German economy to stagnate in 2024 before increasing by 0.9 percent and 1.5 percent in 2025 and 2026, respectively.
Although the German government pins high hopes on the growth measures, ifo remains cautious, saying "there are still no concrete legislative initiatives for most of the measures."
