The fifty-eighth annual meeting of the Ifo Institute took place in LMU's Grosse Aula on 25 June 2007. The participants, including numerous representatives of member firms of the Ifo Institute and representatives of Bavarian and federal ministries, were offered an interesting programme. After greetings by the rector of the university, Prof. Bernd Huber, Prof. Hans-Werner Sinn presented the latest Ifo economic forecast. Part of his presentation was devoted to a minimum income or a minimum wage. Federal Minister of Finance Peer Steinbrück gave the featured presentation: "Fiscal and Economic Policy of the Federal Government - The Reform Agenda for Germany". The event concluded with a further highpoint: a podium discussion on: "Upheaval in the World Economy: What Chances has Germany as a Location for Innovation and Production?" Participants in the discussion, along with Prof. Sinn, were Prof. Roland Berger, Chairman Roland Berger Strategy Consultants, Dr. Manfred Bischoff, Chairman of the Supervisory Board of DaimlerChrysler AG, and Klaus Regling, Director General of GD ECFIN, European Commission. The discussion was chaired by Klaus Methfessel, Deputy Chief Editor of WirtschaftsWoche. The statement of Klaus Regling and the Ifo Economic Forecast are published in this issue. The statement of Roland Berger and the presentation of Minister Steinbrück will appear in the next issue of ifo Schnelldienst.
G. Flaig, W. Nierhaus, I. Becker, S. Henzel, O. Hülsewig, E. Langmantel, J. Mayr, W. Meister, M. Ruschinski, D. Ulbricht and T. Wollmershäuser
The world economy is in the fourth year of an economic upswing and has also continued to expand robustly this year. Growth in GDP has been dynamic as a result of the favourable profit situation of enterprises, higher stock prices and, despite the recent increases, the still comparatively low, long-term interest rates. The expansion of the world economy will continue to be lively in the forecast period but will flatten somewhat. The upswing in the euro zone will initially continue at a robust pace but will be somewhat less dynamic next year. GDP in the industrialised countries will grow by 2.5% in 2007 and by 2.8% in 2008. World trade will expand this year by 7.5% and next year by 8.0%. In Germany, the economic upswing has continued despite the increase in the rate of VAT at the beginning of the year. Seasonally adjusted, total economic output rose in the first quarter at a current annual rate of 2.1%, although previously the pace of expansion had been 4.0%. In the forecast period, the economic upswing will continue but will not match the robust pace of the past year. Total economic output will expand this year by 2.6% (working-day adjusted by 2.8%). In 2008 the economic expansion will enter its advanced phase. Capital expenditure on equipment will rise again but at a slower pace. Private consumption will expand due to the improved situation on the labour market. Total economic output is expected to expand by 2.5%. With calendar adjustment for the larger number of working days this will mean a growth of only 2.1%. Consumer prices will increase by 2.1% in 2007 and by 1.8% in 2008. In the forecast period, the continuingly high rate of capacity utilisation will boost labour demand. The increase in employment will be primarily for full-benefit positions and for non-state-supported self employment. In total, domestic employment will increase by 475,000 in 2007 and by 308,000 in 2008. The reduction in unemployment will progress further under the favourable economic conditions but at a reduced pace. Unemployment will decline by 675,000 in 2007 and by 285,000 in 2008. On average for 2007, unemployment will stand at 3.8 million and in 2008 at 3.5 million. The budget deficit this year will be reduced by about 8 billion euros, which will be 0.3% of nominal GDP. In 2008 a slight budget surplus of about 5 billion euros can be expected. The last budget surplus was in 1989, the last year before German reunification, disregarding the special effect in 2000, when revenue from the auctioning of UMTS licences (nearly 51 billion euros) led to a budget surplus of 27 billion euros. Since the output gap will be clearly positive in 2008, the cyclically adjusted deficit rate will still amount to nearly 1%. The task of consolidation is thus by no means complete even though with this year's fiscal measures (especially the increase in the rate of VAT) and with the moderate wage increases in the public sector the cyclically adjusted budget deficit has been lowered by a good 1.5 percentage points since 2005.
Joachim Gürtler and Arno Städtler
After a clouding in the autumn months of 2006, the business climate in the German leasing sector clearly improved at the turn of the year. Also in the first five months of 2007 the confidence indictor tended upwards. In light of lively demand, the leasing companies were again very satisfied with their current business situation. In May, 54% of the leasing companies assessed their business situation as good, 42% as satisfactory and only 4% of the participants reported a poor business situation. The majority of leasing companies expects business to remain steady into the autumn months.
Hans G. Russ
In German industry and trade the business climate cooled off somewhat in June. In the assessments of the current business situation the positive appraisals were dominant but again somewhat less so than in the previous month, and also the business expectations showed signs of weakened confidence. Both components of the business climate remain at a high level, which indicates that the economic situation is currently robust and that the upturn should continue in the second half of the year.
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