The economists gave Olaf Scholz and Robert Habeck some important reading. This is not particularly positive. The scientists come to a conclusion that the two politicians have not yet expressed publicly.

One can only hope that the Chancellor and his Economics Minister find time and leisure to read on the Pentecost weekend. The most recent book, which was written just for them, definitely belongs on the bedside table: it is the report from the five economists.

In the barren language of economics and with convoluted sentence constructions that are sometimes reminiscent of Heinrich von Kleist, those responsible find the seven uncomfortable truths that they should no longer avoid:

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For 2024, the economists at the Advisory Council only expect mini-growth of 0.2 percent. This means they are revising their forecast from last autumn downwards: At that time they were still assuming growth of 0.7 percent. In their spring report, the economists write the sentence that Olaf Scholz and Robert Habeck never say:

“The German economy is still in a weak phase.”

From January to April, the inflation rate fell to 2.2 percent from 2.9 percent compared to the previous year. Economists identify two reasons for this: the fall in energy and import prices and the ECB’s restrictive monetary policy.

But don’t get too excited: the decline in inflation is slowing. Overall, consumer prices are expected to be 2.4 percent in 2024. Economists also warn of geopolitical uncertainties that could accelerate price increases again at any time.

Core inflation, which excludes highly volatile food and energy prices, will still remain at 3.0 percent in 2024. The report states:

“In terms of core inflation, price pressure is expected to continue.”

Economists warn politicians against complacency: high employment alone says nothing about the quality of the labor market. Structurally, conditions on the labor market would become worse.

On the supply side, there are massive shortages due to demographic change and falling average working hours. On the demand side, economists are observing an increasing hoarding of workers: despite the poor economic situation, companies are refraining from laying off workers.

This leads to inefficiencies because workers and their skills remain with unproductive companies and do not benefit more productive, innovative companies. The job market is becoming rigid. In their report the wise men write:

“Since the Corona pandemic, the structural conditions on the German labor market have worsened and matching efficiency has decreased.”

Uncertainty is the No. 1 investment killer. And it is still above the level of the first Corona wave in 2020. A smaller proportion of companies are planning to expand investments in spring 2024 than in autumn 2023. The construction industry is being hit particularly hard . Half of residential construction companies complain about a lack of orders:

“The economic slowdown in residential construction is likely to continue throughout 2024.

Things are going better worldwide than in Germany. For the euro area, the wise men predict growth of 0.8 percent in 2024 and 1.5 percent in 2025. Private consumption, an upswing in global trade and increasing global industrial production are pushing European growth. Inflation in the euro area is expected to be 2.4 percent in 2024 and 2.1 percent in 2025.

Things are going even better elsewhere:

“As has been the case since the beginning of 2023, the emerging markets, especially China, contributed to growth, but hardly any advanced economies contributed. “

“Geopolitical uncertainty has been significantly higher than the historical average since the beginning of 2022.”

Economists identify three economic consequences of high uncertainty:

Since the Federal Constitutional Court’s ruling in November last year, which declared the federal government’s loan fantasies illegal, the traffic light has been divided over where and with whom savings should be made. A danger to the German economy, say economists:

“In Germany, the federal government’s difficult budget planning is a risk, especially for 2025. Additional savings efforts may be necessary to comply with the debt brake in 2025.”

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Conclusion: This Pentecost reading will not make Scholz and Habeck happier, but it will make them wiser. In order to implement the newly gained knowledge, we recommend reading the speech by Federal President Roman Herzog, which was given on April 26, 1997 in the then newly built Hotel Adlon in Berlin and which then went down in history as the “ruck speech”:

“What’s wrong with our country? The loss of economic dynamism, the paralysis of society, an incredible mental depression – these are the key words of the crisis.”

“The world is on the move, it is not waiting for Germany.”

“There has to be a jolt through Germany. We have to say goodbye to possessions that we have grown fond of. Everyone is addressed, everyone has to make sacrifices, everyone has to participate.”