Germany's growth prospects dim even as DAX hits all-time high

Germany has joined the ever-growing list of countries which have experts pessimistic about medium-term growth prospects.

This week, the German Institute for Economic Research (DIW for short) released a statement in which the respected researcher forecast only 0.6 percent growth for 2024 – half of what it predicted for 2024 just last quarter.

It was slightly more optimistic about 2025, predicting one percent growth for the year after next – which was nevertheless still lower than the 1.2 percent it predicted for Germany three months ago.

What DIW says

"This forecast takes into account the fact that the German government will make savings for the next two years and will not realise all of its promised or promised expenditure," the institute said on December 14th.

In a separate but related announcement, the DIW urged the ECB to ‘slash interest rates’ from Q1 of 2024:

The message from DIW to the ECB is relatively clear: cut rates now in the short-term, or reap an economic slowdown in the medium to longer term. This is also a more bearish stance than the European Commission’s own forecast: a 0/8 percent rise in GDP in 2024 and 1.2 percent growth for 2025.

Read more: Rate cuts are coming in 2024 - but not as soon as you think

What the central bank says:

Germany’s own central bank, the Deutsche Bundesbank, is even more pessimistic of the country’s prospects:  

Calendar-adjusted real gross domestic product (GDP) will increase by 0.4 percent next year, following a slight contraction of 0.1 percent this year. In 2025 and 2026, the economy will grow by 1.2 percent and 1.3 percent, respectively.”

What the DAX says:

Somewhat ironically, the DAX index - representing the country's top stocks - shot to its highest price ever on the same day as the DIW and Deutsche Bundesbank released their forecasts. The DAX was trading at over 17,002.00 for the first time ever on Thursday December 14th.

Read more: Markets celebrate early as rates hold steady. But are they right?