DThe OECD has lowered its growth outlook for the German economy. In June, they had predicted a growth of 1.2 percent for the upcoming year, but now they only expect 0.9 percent – the same as Russia. They forecast a growth of 1.1 percent for the Eurozone, 1.3 percent for the USA, and 2.7 percent for the global economy. This information was shared by the organization on Tuesday in their new economic outlook. The OECD’s outlook is even more pessimistic for Germany than the Munich Ifo Institute and the EU Commission, who have also recently revised their forecasts downwards, but still expect a growth of 1.4 and 1.1 percent for the upcoming year.
As a pessimist, OECD Chief Economist Clare Lombardelli, who took office in May, does not want to be misunderstood. Yes, this year is difficult for the German economy. But despite the revised forecast, the signs point to recovery in 2024. There are many reasons for this. „The main reason is that inflation is falling again and real incomes will rise,“ Lombardelli said in an interview with F.A.Z. Private investments continue. For this year, the OECD expects a decline in German economic output of „only“ 0.2 percent, while the Ifo Institute and the EU Commission expect a twice as large decline.
Lombardelli responded to the objection that the current economic weakness is likely not solely cyclical by stating that there are structural problems for the German economy, as well as for many other economies. Of course, the transition towards more climate protection means that there will be a need for adjustments in business models. „Restructuring“ is necessary, and concerns are understandable.
„But there are also some quite significant strengths in Germany that could be built upon,“ emphasizes the British woman with Italian roots on her father’s side, who studied at the London School of Economics and Oxford, was recently a senior economic advisor at the British Treasury, and succeeded Laurence Boone at the OECD, who has moved to the French government. Among the strengths are highly qualified workforce and strong capital investments. There is no reason why Germany should not be counted among the „big winners.“
„A shift in power favoring the employees“
Lombardelli, however, urges for more long-term thinking. It is understandable to be concerned about jobs and call for protective subsidies for the industry. However, the latter delays necessary adjustments and investments. „I do not believe that this works in the long run,“ said the OECD chief economist about subsidies for the industry such as discounted electricity prices. She lamented that many of the debates being held at the moment remain focused on the present. It is important for European politics to consider long-term trends. It is necessary to examine more closely whether the industry is prepared for the world of tomorrow.
The economist also calls for political efforts to reduce high government debt and in social policy. „We welcome the type of pension reform that the French are implementing,“ Lombardelli said, referring to the increase in the retirement age from 62 to 64 years and the required contribution period for full benefits. Lombardelli referred to demographics as „a truly significant challenge that currently burdens all economies, including Germany’s.“ One of the responses to this challenge must be to extend people’s working lives. It is simply not sustainable for the retirement age to remain the same while more and more people depend on the working-age population. Furthermore, such reforms also send a signal to foreign investors.
Lombardelli does not yet have a clear opinion on the four-day work week, which is becoming increasingly popular not only in Germany but also in her British homeland, and is causing discussions. It is too early to assess the impact on productivity, although some studies suggest an increase. It is certain that the job markets are very tense, people with specific skills are in high demand, and people have changed their attitude towards work. Therefore, there is currently „a discrepancy between people’s desires and the available job positions“ and we see „a shift in power towards the employees“ who can dictate the conditions a little more. However, Lombardelli would be surprised if the four-day work week were to become the norm in the future. It does not exist yet in the OECD.
Lombardelli connects the presented economic outlook on „Combating Inflation and Low Growth“ with a clear call for global trade. She emphasizes the need to carefully consider how to address legitimate security concerns and make supply chains more resilient through diversification. It is important to recognize that global trade is a significant source of long-term prosperity, and reducing trade restrictions promotes productivity and growth. These benefits will be visible and tangible to individuals.