Ifo Economic Forecast 2006: Upswing in the German Economy

After the record year 2004, the world economy also expanded this year at a surprising pace of 4.3%. The Ifo World Economic Climate Index remains above its long-term average, even rising slightly in the fourth quarter. Other indices, such as the OECD leading indicators, also point upwards. Next year the growth rate of world economic output should be slightly higher than this year. The expansion of the world economy will become more broad-based. In the United States GDP will grow at a slightly slower pace, but the economies of Japan and China will continue to experience lively economic growth. In Europe a clear acceleration of economic activity is expected. Real GDP in the euro area should increase next year by 2.0%, after 1.4% in the current year. This forecast is based on the assumption that commodity prices, especially the price of oil, will remain at the present high levels and that no consequential effects will occur in the form of wage increases. This will result in a slow drop in the rate of inflation, with less pressure for restrictive monetary policies from central banks, even though interest rates may increase somewhat in the wake of the further economic recovery. The German economy is experiencing an economic upswing. The Ifo Business Climate Index has risen, and industrial output as well as incoming orders have been clearly expansive. In 2005 real GDP will grow by 0.9% (working-day adjusted: 1.1%), after growth of 1.6% in 2004.