German economy to shrink 0.6% in 2023 before wages drive rebound
GERMANY’S economy is on course for its first full year of contraction since the pandemic, new forecasts showed, though rebounding consumption should spur a recovery in 2024.
Output will drop by 0.6 per cent in 2023, according to projections by five institutes that advise the government. That’s a gloomier outlook than those of both the International Monetary Fund and the European Commission. Next year will bring growth of 1.3 per cent, helped by rising wages, lower energy prices and easing supply bottlenecks.
The institutes lowered their expectations for this year from an April forecast for 0.3 per cent expansion. The downward revision was mainly due to industry and private consumption “recovering more slowly than we expected,” Oliver Holtemoeller, vice president at the Halle Institute for Economic Research, said on Thursday (Sep 28) in a statement.
Europe’s largest economy has failed to regain momentum after Russia’s invasion of Ukraine sent energy prices soaring, triggering a recession. Its woes have shone a light on deep-seated structural issues that threaten to weigh over the coming years – including a dwindling workforce, an over-reliance on China and the energy transition.
The struggles have rippled though politics, too, contributing to an erosion in the popularity of Chancellor Olaf Scholz’s ruling coalition that’s helped the far-right AfD to surge in opinions polls.
German output will shrink by 0.4 per cent this quarter, but rise by 0.2 per cent in the final three months of 2023 – escaping another recession, according to the institutes. While the weakness is starting to reach the labour market, they only expect a moderate increase in unemployment this year, followed by a slight improvement in 2024.
One headwind that eased is inflation, which slowed sharply in September to the lowest level since the outbreak of the Ukraine war, preliminary data showed on Thursday, in a much-needed boost for Europe’s top economy.
The figure came in at 4.5 per cent year-on-year, down from 6.1 per cent in August, according to national statistics agency Destatis.
Bundesbank President Joachim Nagel is among officials cautioning against overly pessimistic assessments of Germany’s prospects, saying the country has the capacity to adapt to the changing conditions and will overcome its current malaise. BLOOMBERG
Share with us your feedback on BT's products and services
