Despite the relief package
Economists expect recession in autumn
09/05/2022 3:31 p.m
The traffic light relief package, worth billions, is likely to support purchasing power in Germany. However, economists predict that this will not prevent a recession in the fall. Because the high energy prices also represent a supply shock.
Even with the new €65 billion relief package, economists predict that Germany will no longer be able to escape a recession. “The third relief package does little to change the fact that Germany is likely to slide into a recession in the fall,” said Commerzbank chief economist Jörg Kramer.
This was also confirmed by ING chief economist Carsten Brzeski: “The package will probably not be enough to prevent the economy as a whole from falling into recession.” The measures decided on Sunday accounted for less than two percent of German gross domestic product and fell short of the fiscal stimulus due to the corona pandemic, which amounted to around 15 percent of GDP.
The massive increase in energy prices is primarily a supply shock, said Krämer. “Companies must reduce the use of energy that has become expensive and cut back their production accordingly,” said the Commerzbank chief economist. According to a survey by the Association of German Chambers of Industry and Commerce (DIHK), 16 percent of companies are already planning this. “The relief package cannot change the fact that Germany, as a net importer of energy, has become poorer,” said Kramer.
Package could “significantly mitigate” recession
Soaring energy prices as a result of the Russian war in Ukraine are eroding consumers’ purchasing power and driving up costs for businesses. From April to June, gross domestic product only grew by 0.1 percent compared to the previous quarter. A recession occurs when economic output shrinks for at least two quarters in a row.
Among other things, the traffic light coalition has decided on an energy allowance of 300 euros for pensioners and one-off aid for students of 200 euros. Child benefit will also increase by 18 euros from January 1st. Recipients of housing benefit receive a heating subsidy of 415 euros in a one-person household for September to December.
The institute for macroeconomics and business cycle research, which is close to the trade unions, sees this as at least a stabilizing factor. “All of these measures support purchasing power and should therefore help to avoid a drastic decline in consumer demand in the coming months,” said its scientific director Sebastian Dullien. In 2023, the German economy will be hit by a shock of just over 200 billion euros from increased import prices for fossil fuels. The demand stimulus of 65 billion euros that has now been decided “could in principle cushion a third of this shock and thus at least significantly mitigate or possibly even prevent an impending recession,” said Dullien.