# German economic growth to remain muted in near term – IMF Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2023-05-16 Category: FINANCE Category URL: https://financedigest.com/category/finance Meta Title: IMF: German Economic Growth Forecasted by 2026 Meta Description: Get insights on Germany's economic outlook from the latest IMF report, highlighting factors like financial conditions, inflation, and fiscal policy. URL: https://financedigest.com/german-economic-growth-to-remain-muted-in-near-term-imfhtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/2023-05-16t111036z1lynxmpej4f0g9rtroptp4germany-dailylife-frankfurt-1736814010307-compressed.jpg) # German economic growth to remain muted in near term – IMF BERLIN (Reuters) -The German economy has shown resilience over the last year thanks to a strong policy response and a mild winter, but economic growth will remain muted in the near term, the International Monetary Fund (IMF) said on Tuesday. Tighter financial conditions and the energy price shock have begun to weigh on near-term growth, the IMF warned in its country report for Germany. It forecast growth in Germany’s gross domestic product (GDP) to stay near zero in 2023, before gradually strengthening to between 1% and 2% in the period of 2024 to 2026. Over the longer term, average [GDP growth](https://www.financedigest.com/spain-q2-quarterly-gdp-growth-revised-to-1-5-from-1-1.html "Spain Q2 quarterly GDP growth revised to 1.5% from 1.1%") is expected to fall back below 1% as the population ages and with no significant accelerations in productivity or labour supply foreseen. Although headline [inflation is falling](https://www.financedigest.com/uk-retailers-report-record-food-inflation-but-see-falls-ahead.html "UK retailers report record food inflation but see falls ahead") steadily, core inflation is proving stickier, according to the report. A [top priority](https://www.financedigest.com/why-intelligent-automation-should-be-a-top-priority-for-enterprises-in-2022.html "Why Intelligent Automation should be a top priority for enterprises in 2022") in the near term is thus to support disinflation with a moderate tightening of the fiscal stance in 2023,” it said. The IMF has clearly confirmed the finance ministry’s fiscal policy strategy: [financial restraint and supply-side measures,” Finance](https://www.financedigest.com/finance-transformation-with-analytics.html "Finance transformation with analytics") Minister Christian Lindner said. Over the medium term, Germany may need to create more fiscal room for investment in its future, the IMF said. It expects [Germany’s deficit to narrow to around 0.5% of GDP by 2027 as energy](https://www.financedigest.com/in-germany-energy-price-shock-triggers-fears-of-insolvency-wave.html "In Germany, energy price shock triggers fears of insolvency wave") relief measures are phased out. The debt brake, anchored in the German constitution, limits the [budget deficit to 0.35% of GDP](https://www.financedigest.com/austria-plans-to-bring-budget-deficit-within-3-of-gdp-next-year.html "Austria plans to bring budget deficit within 3% of GDP next year"). The German parliament suspended the debt brake between 2020 and 2022 to allow for extra spending in response to the [COVID-19 pandemic](https://www.financedigest.com/tissue-tapes-market-remains-afloat-amid-covid-19-pandemic-to-surge-positively-projects-fmi-2019-2029.html "Tissue Tapes Market Remains Afloat amid COVID-19 Pandemic, to Surge Positively, Projects FMI 2019 – 2029") and the effects of the war in Ukraine. Germany [created multiple extrabudgetary funds](https://www.financedigest.com/entrepreneur-investor-dale-w-wood-shares-how-he-is-using-his-funds-to-create-change.html "Entrepreneur & Investor Dale W Wood Shares How He Is Using His Funds to Create Change") totalling about 9% of GDP during those years. This [spending does count towards the general government](https://www.financedigest.com/growth-will-pay-for-uk-government-spending-plans-minister-says.html "Growth will pay for UK government spending plans, minister says") deficit as measured under EU statistical standards. Germany should [consider adjusting the debt-brake rule to better align it with EU fiscal rules and lessen reliance on extrabudgetary funds,”](https://www.financedigest.com/eu-considers-more-funds-for-eastern-states-in-bid-for-deal-on-russia-oil-ban.html "EU considers more funds for eastern states in bid for deal on Russia oil ban") the IMF said. However, the German [finance ministry said a relaxation of the debt](https://www.financedigest.com/understanding-company-debt-finance.html "Understanding company debt finance") brake was not an option. The debt brake has not only proved its worth nationally, it is also a guarantor of confidence in the stability of German [public finances,”](https://www.financedigest.com/italy-slashes-2023-growth-forecast-but-sees-public-finances-improving.html "Italy slashes 2023 growth forecast but sees public finances improving") Lindner said. He said the argument that the debt brake was circumvented with extrabudgetary funds during the [crises was not the intention of the finance](https://www.financedigest.com/global-crises-that-need-the-finance-industry.html "Global Crises That Need The Finance Industry") ministry. Both the special program for the armed forces and the [price brakes](https://www.financedigest.com/factbox-how-germanys-gas-price-brake-is-helping-reeling-industry.html "Factbox-How Germany’s gas price brake is helping reeling industry") are clearly earmarked,” he said. The organization suggests increasing the annual deficit limit by 1 percentage point of GDP, to be more “realistic” regarding the country’s medium-term spending needs. The IMF [warned that uncertainty is high and risks to the baseline forecasts](https://www.financedigest.com/paypals-spending-warning-casts-pall-over-upbeat-forecast.html "PayPal’s spending warning casts pall over upbeat forecast") are tilted downward. (Reporting by Maria Martinez; Editing by Rachel More and Christina Fincher) --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---