Forecasters see slow growth, large skilled worker deficit in Germany

Even though the German economy will be fuelled by a government multibillion-euro fiscal package this year, it is barely expected to grow, a forecast published on Tuesday by the Institute for Employment Research (IAB) showed.

The Nuremberg-based labour market and business cycle experts expect growth of 0.8%.

Headwinds are expected mainly from geopolitical risks such as the war in Iran. The crisis in the Middle East alone is set to reduce growth by 0.2 to 0.3 percentage points.

Demographics are also having a negative impact: the labour force potential, meaning people who are available to the labour market, is falling for the first time by 40,000 to 48.62 million, with the skilled labour shortage being exacerbated by the retirement of the baby boomers.

The number of unemployed people is expected to rise by 40,000 on average over the year, though the increase is only expected to take effect in the first half of the year. In the second half, there could be a slight decline.

New jobs are expected almost exclusively among public service providers, in healthcare and in education. Employment in industry is expected to continue to shrink.

"The Iran war and the associated increases in energy prices and disruptions to trade are additionally weighing on employment developments in industry," said IAB researcher Enzo Weber. The forecast is for 140,000 jobs fewer jobs in that sector alone.