On 24 June 2008, the 59th Annual Meeting of the Ifo Institute took place in the Aula of the University of Munich (LMU). After words of greeting by LMU President Bernd Huber, Ifo President Hans-Werner Sinn presented the latest Ifo economic forecast. He commended the performance of the Agenda 2010 reforms, by which a considerable number of jobs, especially in the low-wage sector, have been created. Sinn also discussed the importance of bio-energy for efficient environmental policies. Bio-fuels do lower the demand for fossil fuel but this demand-policy measure remains ineffective if the supply of fossil fuel is not also reduced. In addition, with the production of bio-energy the cultivation areas for food are drastically reduced. The keynote speaker, Reinhard Bütikofer, party leader of Alliance 90/The Greens, examined the economic-efficiency aspects of climate protection. The event concluded with a panel discussion chaired by Roland Tichy, Chief Editor of WirtschaftsWoche. Participants in addition to Reinhard Bütikofer and Hans-Werner Sinn were Otmar Bernhard, Bavarian State Minister for the Environment, Health and Consumer Protection, Udo Martinsohn, Chairman of the Board of Management Swiss Re Germany Holding AG, Johannes Teyssen, Deputy Chairman of the Board of Management, E.ON AG, and Andreas Troge, President of the Federal Environmental Agency. Statements by Otmar Bernhard and Udo Martinsohn are printed in this issue.
Kai Carstensen, Wolfgang Nierhaus, Klaus Abberger, Steffen Elstern, Steffen Henzel, Oliver Hülsewig, Johannes Mayer, Wolfgang Meister, Dirk Ulbricht and Timo Wollmershäuser
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%. After having reached the apex of the cycle this year, the economic forces will weaken noticeably next year, investments in plant and equipment will hardly show any expansion and stimulus from foreign sales will become increasingly weaker. Private consumption will show some growth in the wake of lagging labour market developments, but over the course of the whole previous cycle, this component was not able to unfold any significant economic dynamics. All in all, real GDP will grow by 1.0% in 2009; calendar adjusted growth will be of a similar order of magnitude. With an estimated potential growth rate of 1½%, the aggregate output gap will decrease by ½ percentage point. The consumer price level will increase on average for 2008 by 3.1%; in 2009 - after the price increase for food and energy have been digested - by 2.4%.
Rüdiger Parsche
In 2005 for the first time in years a decline in the revenue shortfall ratio of VAT was registered. This decline in revenue shortfall also occurred in 2006 and, according to available data, also in 2007. On the basis of the available key economic data, a VAT revenue shortfall ratio of 9% was calculated, which was lower than the 11½ percent ratio in 2005 and the 9½ percent ratio in 2006. The decline in the shortfall ratio in 2007 is of particular interest, since this was the year that Germany increased its VAT rate by 3 percentage points to 19%. With this strong increase, many expected an increase in undeclared and untaxed work, and thus an increase in the revenue shortfall ratio. For 2008, a shortfall ratio of 9% is again expected.
Joachim Gürtler and Arno Städtler
The business climate in the German leasing sector worsened in the summer months of 2007, reflecting the decline in the confidence indicator for industry and trade. Nevertheless, assessments of the current business situation seem to indicate some amount of stabilisation. The current situation is again assessed much more favourably than the six-month outlook. The early indicator for investment indicates for 2008, after the strong improvement in 2007, a noticeable slowdown in growth in plant and equipment expenditure, including non-tangibles. The expected growth will still amount to 4 percent in nominal terms. Price adjusted and for equipment purchases alone, this would mean a plus of about 6 percent. The growth pace will decline, however, from quarter to quarter, since there will be a weakening in the cyclical components. For 2009, the beginnings of a weak investment period are emerging.
Klaus Abberger
The Ifo Business Climate for German industry and trade worsened significantly in June. The firms assessed their current business situation considerably less favourably than in the previous month and their six-month expectations are clearly more sceptical. The strong hike in oil prices is evidently having an increasingly harmful effect on the German economy.
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