Habeck with a new forecast
Recession fails, crisis continues
01/25/2023 at 6:27 p.m
Economic experts thought a recession of up to 12 percent possible – if Germany had run out of gas. But now the topic is off the table altogether, as Economics Minister Habeck announced.
The federal government sees the danger of a deep recession in Germany as a result of the Ukraine war and high energy prices averted. Economics Minister Robert Habeck said in Berlin that a serious economic crisis had been averted. He also justified this with the “decisiveness” of the government and the willingness to make unusually large decisions. The federal government had decided to provide billions in aid for companies and households. The crisis has become manageable – but is far from over, said the Green politician at the presentation of the annual economic report.
The federal government expects gross domestic product (GDP) to increase by 0.2 percent this year. Under the impact of the energy price crisis in particular, the government still expected in October that the economy would shrink by 0.4 percent this year. A so-called technical recession is possible in winter. If the economy shrinks for two quarters in a row, economists speak of a “technical recession”. In the spring it will go uphill, so the expectation.
According to provisional figures from the Federal Statistical Office, Europe’s largest economy grew by 1.9 percent last year. According to Habeck, there will be no deep economic slump this year. The worst scenarios have been prevented. He reminded that institutes last year predicted a contraction in economic output of up to 12 percent for 2023 – in the event of a gas shortage. In all likelihood there will be no such thing. Habeck proudly listed the measures taken by the government: the gas storage facilities had been filled, new terminals for the import of liquefied natural gas (LNG) had been built, and the markets had been stabilized.
Inflation remains high
However, there are still high burdens, as the annual economic report states: Russia’s war of aggression against Ukraine and its economic consequences, the weak development of the global economy and the persistently high energy prices and inflation rates compared to the pre-crisis level are mentioned.
The federal government expects the inflation rate to fall this year – but remain at a high level. For the annual average in 2023, consumer prices are expected to rise by 6.0 percent compared to the previous year. The electricity and gas price brakes had a dampening effect on the inflation rate. At the same time, however, it says: “The real loss of income and purchasing power associated with the high price increases will burden domestic economic development, despite the relieving effects of the extensive government support measures.” Private consumption in particular is likely to drop noticeably after the catch-up effects caused by the pandemic last year.
The annual economic report is entitled: “Renewing prosperity”. This is aimed at the great task of the future, namely the far-reaching restructuring of the economy towards more climate-friendly production. However, this could be severely slowed down by a lack of investment and the shortage of skilled workers. According to Habeck, there are currently 800,000 vacancies in Germany. The government sees securing skilled workers as a crucial task, and in future the immigration of foreign skilled workers is to be made easier.
In order to support the economy in climate-friendly conversion, the minister coined the term “transformative supply policy”. Public investments should increase for investments in climate protection and private capital should be mobilized, for example through tax incentives. The federal government is working on an investment bonus. Habeck, however, avoided questions about a corporate tax reform, such as those demanded by trade associations with reference to the high tax burden in international comparison, and pointed to budgetary constraints. Instead, he emphasized instruments such as so-called climate protection agreements, with which the state wants to help companies. That also costs many billions.
Concerns of business associations and unions
Business associations see the global competitiveness of German companies increasingly at risk. Gesamtmetall General Manager Oliver Zander said: “Fortunately, the situation is a little better than last feared. Nevertheless, the warning signals for Germany as a location are increasing all the time”. The migration of companies abroad and relocations of production due to bureaucracy, energy prices, labor costs and infrastructure are concrete. DIHK General Manager Martin Wansleben said that a deep recession had fortunately failed so far. However, the level of uncertainty among companies remains high, partly because of the high energy prices.”
Added to this are the long-term challenges of structural and climate change, demographic developments and digitization. Germany urgently needs to shift three gears up when it comes to investments.”
DGB board member Stefan Körzell said that the current crises hit low earners particularly hard. There is no way around a fairer tax system that relieves the majority of employees. Wealthy and rich heirs should be held more accountable – but that can’t be done with the FDP.