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The German economy slipped into recession at the beginning of the year. There are now increasing forecasts that economic output will also shrink in 2023 as a whole.
Three of the leading economic institutes significantly lowered their forecasts for growth on Thursday – and turned them into the red.
IfW Kiel, DIW Berlin and RWI Essen expect an improvement over the course of the year and growth again in the coming year. Inflation, interest rates and the labor shortage remained the greatest risks.
The German economy is not moving. On the contrary: three of the leading economic institutes corrected their forecasts for economic growth significantly downwards on Thursday – and into the red. Economists had previously expected the German economy to make up for the weak first quarter over the course of the year. But instead of a small growth expect the German Institute for Economic Research (DIW Berlin)the Kiel IfW and Essen’s RWI now report that economic output will also shrink by 0.2 to 0.3 percent in 2023 as a whole.
After all, the following applies to the hope for improvement: Postponed, not lifted. The researchers also agree that the situation will improve over the course of the year. In the coming year, the economy will grow again in 2024. The DIW expects growth of 1.5 percent, the IfW 1.8 percent and the RWI 2.0 percent. The IfW and the RWI thus adjusted their forecasts for 2024 upwards.
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“We think that private consumption is recovering – but tentatively,” said DIW expert Geraldine Dany-Knedlik. Slower inflation and higher wage settlements would help reduce uncertainty.
According to the DIW, real incomes are likely to rise again from the second half of the year for the first time in three years. This would mean that people would have more money at their disposal, even after deducting the price increases. Private consumption had previously declined significantly. As a result, the economy shrank slightly in the first quarter, said Dany-Knedlik.
Since then, Germany has been in a Recession. In the final quarter of 2022, gross domestic product shrank by 0.5 percent, and in the first three months of 2023 by another 0.3 percent – in each case compared to the previous quarter.
The RWI also attributes the weak demand to private households. Due to the Inflation at the beginning of the year and the associated falling real income, they would have reduced their consumption. ≤As the year progresses, household consumer spending is likely to rise again as inflation falls.” Overall, inflation will be 5.5 percent this year and will fall to 2.0 percent next year.
The IfW expects an inflation rate of 2.1 percent for 2024. In view of the crisis and the stoppage in the supply of oil and gas from Russia, the German economy is doing “valiantly” and showing its ability to adapt quickly, commented the new IfW President Moritz Schularick. Economic chief Stefan Kooths added that the outlook is better than the negative annual rate for 2023 would suggest.
With material from dpa.
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