Advertisement

Why the German economy is expected to grow in 2023

AFP/The Local
AFP/The Local - [email protected]
Why the German economy is expected to grow in 2023
Photo: Markus Spikse/Unsplash

The German economy, Europe's largest, is expected to dodge a recession and grow by 0.3 percent this year thanks to a drop in energy prices among other factors, leading economic institutes said Wednesday.

Advertisement

"The economic setback in the winter half-year 2022/2023 is likely to have been less severe than feared," said Timo Wollmershaeuser from the Ifo institute.

"The main reason for this is a smaller loss of purchasing power as a result of a significant drop in energy prices."

READ ALSO: Inflation in Germany eases due to lower energy prices

Inflation, however, will only ease slightly to six percent, from 6.9 percent in 2022.

In their previous forecast last autumn, the researchers were still expecting Germany's economy to shrink by 0.4 percent, after Russia's invasion of Ukraine sent energy and food costs surging.

Advertisement

But a 200 billion government relief package, including a cap on gas and electricity prices, combined with mild winter weather and efforts to diversify gas supplies have helped Germany's economy cope better than expected.

Easing supply chain bottlenecks and China's relaxation of Covid-related restrictions have also buoyed the country's export-oriented economy.

The forecast -- unveiled by the Ifo institute, the Kiel Institute for the World Economy, the Halle Institute for Economic Research and the RWI Leibniz Institute for Economic Research -- is more optimistic than the government's own estimates.

Berlin, which had also initially predicted a recession for 2023, has more recently upgraded its forecast to 0.2 percent growth.

The brighter outlook was evident in separate data released by statistics agency Destatis on Wednesday, which showed a surprise jump in new factory orders in February.

New orders, seen as an indicator of future industrial activity, surged by 4.8 percent on the previous month thanks to strong domestic and eurozone demand.

Stubborn inflation

Although Germany's inflation rate eased to 7.4 percent in March after hitting a peak of 8.8 percent in late 2022, consumer prices are set to remain stubbornly high this year.

Government relief measures and expected high wage increases "are strengthening domestic demand and keeping domestic inflation high," the think-tanks said in their statement.

READ ALSO: Which products are driving up inflation in Germany

"Only next year will this aspect of inflationary pressure also ease, bringing the inflation rate down noticeably to 2.4 percent."

The German economy is expected to grow "more strongly" in 2024, expanding by 1.5 percent, the researchers added.

Economists cautioned that while recent positive indicators and upbeat business surveys gave reason for optimism about the German economy, many uncertainties remained.

The jury was still out on whether Wednesday's rise in factory orders for instance marked "the start of an industrial revival", said ING bank economist Carsten Brzeski.

"The expected slowdown of the US economy, the fallout from recent financial market turmoil and the broader impact of monetary policy tightening" could yet "spoil the party", he warned.

More

Join the conversation in our comments section below. Share your own views and experience and if you have a question or suggestion for our journalists then email us at [email protected].
Please keep comments civil, constructive and on topic – and make sure to read our terms of use before getting involved.

Please log in to leave a comment.

See Also