13 October 2011
In summer 2011, the outlook for the global economy deteriorated markedly. In Europe in particular, the sovereign debt crisis threatens to escalate into a banking crisis. This is having increasingly adverse effects on the German economy. The greatly heightened uncertainty will dampen domestic demand, and foreign trade will no longer contribute to expansion because of the difficult situation of major trading partners. The Institutes expect the gross domestic product to increase by 2.9% this year and by only 0.8% next year. The unemployment rate will decline only slightly from 7.0% to 6.7% in 2012. The expected inflation rate of 2.3% in 2011 and 1.8% in 2012 will be determined more and more by domestic price increases. The government’s budget deficit will decline to 0.9% of GDP this year and 0.6% next year. The greatest risk is an escalation of the European debt and confidence crisis, because of which the financing conditions for businesses could deteriorate noticeably. Economic policy in the EU has been heavily focused on using all possible means to prevent the insolvency of a euro country. Instead of this course, it should create a workable insolvency mechanism for states and a European procedure for the recapitalization and, where necessary, an ordered insolvency of banks.
Members of the Joint Economic Forecast Project Group:
Ifo Institute [www.ifo.de] in co-operation with: Swiss Institute of Business Cycle Research (KOF), ETH Zurich [www.kof.ethz.ch]
Kiel Institute for the World Economy [www.ifw-kiel.de] for the medium-term forecast in co-operation with: Zentrum für Europäische Wirtschaftsforschung (ZEW) Mannheim [www.zew.de]
Halle Institute for Economic Research (IWH) [www.iwh-halle.de] in co-operation with: Kiel Economics [www.kieleconomics.de]
RWI Essen [www.rwi-essen.de] in co-operation with: Institute for Advanced Studies, Vienna [www.ihs.ac.at]
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