Ifo Economic Forecast 2004/2005: The upswing gains momentum

The world economy was expansive in early summer 2004. The US, Southeast Asia, Japan and - at a weaker pace - the European national economies are all experiencing an economic upswing. In the further course of this year and in 2005, the dynamics will decrease incrementally, brought on by recent price hikes for oil and raw materials. Also the stimulating effects of monetary and fiscal policy will weaken. The German economy, however, is still not in a full upswing as of mid-2004. Although economic output has been expanding since mid-2003, the situation on the labour market continues to deteriorate. The growth trend in Germany remains relatively low, in comparison with other member states of the euro area. Real GDP increased in the first half year of 2004 over the previous year by around 1.6%, according to estimates of the Ifo Institute; growth in the second quarter may have been slower than in the first quarter because of higher oil prices. In 2004 economic growth will probably amount to 1.7%. It must be taken into account, however, that approximately 0.5 percentage points of growth is due to the unusually large number of working days in 2004. The situation on the labour market will remain discouraging in the forecast period. Employment numbers may continue to decline, with a slight improvement not coming until the beginning of the year. The unemployment rate will average 10.3% for 2004 and 2005