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Speaker 1: Let's also get more from the EPHO Institute President Clemens

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Speaker 1: Foost on the figures that came out just minutes ago

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Speaker 1: December EFO Business confidence eighty six point four. That's a

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Speaker 1: touch below estimates. Mister fust As always thank you for

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Speaker 1: joining us. How much are do you worry about the

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Speaker 1: German economy in twenty twenty four?

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Speaker 2: Yes, the situation is clearly weak.

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Speaker 3: The economy is weak, and we've been waiting for our

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Speaker 3: recovery now for some time and it's not coming.

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Speaker 2: So this is worrying.

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Speaker 3: What's contributed to that is certainly the uncertainty surrounding the

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Speaker 3: Constitutional court ruling in Germany and the impact on the

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Speaker 3: public budget. But there are other unresolved issues like high

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Speaker 3: energy prices, frictions and international trade. So this is holding

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Speaker 3: the German economy back.

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Speaker 1: But so do you believe the economy is actually slipping back?

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Speaker 1: And so is the rebound that we were expecting at

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Speaker 1: this time. Is that further delayed?

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Speaker 3: It looks like it's further delayed. In our forecast we

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Speaker 3: expected a flat end of the year, so zero growth

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Speaker 3: in the last quarter, and this may now tip us

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Speaker 3: into another technical recession. Q three was negative and Q

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Speaker 3: four may now also be negative. So the recovery, if

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Speaker 3: it comes, is certainly further delayed.

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Speaker 1: So do you think a recession the second half is

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Speaker 1: now confirmed.

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Speaker 3: Yeah, it's not confirmed, but it's becoming increasingly likely because

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Speaker 3: we are just you know, so we expected a zero

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Speaker 3: and now with this incoming data, it may very well

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Speaker 3: be that we have a negative reading.

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Speaker 2: Of course, it's all all very close to zero.

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Speaker 3: The bigger issue is that the German economy is stagnating

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Speaker 3: more or less slightly above or below zero. But we

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Speaker 3: are waiting for this recovery which is not coming, and

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Speaker 3: that is certainly a matter of concern.

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Speaker 1: Mister you mentioned, of course, you know, the German government

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Speaker 1: finally agreeing on this budget after negotiations at times, we

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Speaker 1: understand we're pretty tense. The measures include subsidy cuts, but

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Speaker 1: also they include a higher carbon price. So what's the

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Speaker 1: impact of those measures actually on inflation and growth going forward?

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Speaker 3: So our expectation is that the impact on growth will

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Speaker 3: be very limited, maybe zero, zero point two percentage points lower.

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Speaker 3: That's not the big issue. The issue is maybe more

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Speaker 3: the fact that there is a lot of uncertainty about

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Speaker 3: economic policy going forward, and even now the government has

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Speaker 3: made has found a compromise on the cuts, but this

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Speaker 3: compromise is now called into question again, so this uncertainty

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Speaker 3: is just not going away. At the same time, what

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Speaker 3: we would need is a convincing strategy for economic policy,

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Speaker 3: strategy to get back to growth, a strategy for a recovery,

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Speaker 3: and this strategy is missing completely and I guess that

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Speaker 3: is part of the story that explains why the German

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Speaker 3: economy is not recovering.

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Speaker 2: Of course, there are other factors. The global.

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Speaker 3: Global trade is relatively weak, so that doesn't help either.

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Speaker 1: How much of the German rebound is actually at the

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Speaker 1: mercy of what happens in the US and what happens

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Speaker 1: in China.

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Speaker 3: The US and China are the most important export markets

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Speaker 3: for the German economy, so what.

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Speaker 2: Happens there is very important for Germany.

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Speaker 3: At the same time, Germany faces some structural issues, so

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Speaker 3: it's maybe less clear than in the past that an

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Speaker 3: upswing in global trade will also benefit the German economy

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Speaker 3: as it did before. So we have a combination of

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Speaker 3: concerns about the global economy maybe lacking dynamism coming from

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Speaker 3: the outside, and domestic structural issues. If we think about

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Speaker 3: the car industry, all the issues with emobility, autonomous driving,

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Speaker 3: it problems. So it's this mixture of structural problems and

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Speaker 3: the weak demand from the outside.

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Speaker 1: How much do you think the impact I guess of

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Speaker 1: higher interest rates in Germany have already worked their way

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Speaker 1: through the economy.

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Speaker 3: So higher interest rates have certainly had a strong impact

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Speaker 3: on the construction sector. So that's another reason why the

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Speaker 3: economy is stagnating, especially in construction. We have a very

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Speaker 3: weak development DEFO index has now reached its lowest level

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Speaker 3: since two thousand and five in construction, and that also

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Speaker 3: weighs on the German economy. It's high interest rates, but

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Speaker 3: it's also high construction costs and complex planning procedures. These combinations,

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Speaker 3: this combination of factors is really toxic for the construction industry.

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Speaker 1: And this is not going to ease up anytime soon.

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Speaker 1: When you expect it to normalize a little bit.

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Speaker 3: Well, there are two factors that may help. First of all,

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Speaker 3: wages are growing relatively quickly and employment is still strong.

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Speaker 3: And then we do expect interest rates to decline maybe

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Speaker 3: in the second half of twenty twenty four, and if

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Speaker 3: the economy is weaker, this may even come earlier. So

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Speaker 3: these may be two factors supporting the economy, and these

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Speaker 3: are two factors that may help the economy to grow

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Speaker 3: at least a little bit in the coming year.

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Speaker 1: Okay, mister Fuss, thank you so much for joining us.

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Speaker 1: Clemens Fust, the President of the Epho Institute,