The economy is doing well
Institutes do not expect growth – solid outlook
06/15/2023 4:54 p.m
Several German economic researchers have lowered their growth forecasts for this year. Accordingly, Europe’s largest economy will not grow – the challenges are too great. On the other hand, optimism for 2024 is increasing. The reasons are high wage agreements and a robust labor market.
According to leading institutes, high inflation, a weak global economy and higher interest rates will cause the German economy to shrink this year. The gross domestic product is expected to fall by 0.3 percent, predicts the Kiel Institute for the World Economy (IfW) in its summer forecast. In the spring, growth of 0.5 percent was still assumed. The Essen RWI Institute cut its forecast from plus 0.2 to minus 0.3 percent, while the Berlin DIW expects a minus of 0.2 percent. For comparison: the federal government expects growth of 0.4 percent. For the coming year, the institutes are now expecting growth of up to 2.0 percent.
“In view of the severe crisis and the halt to the supply of oil and gas from Russia, the German economy is doing well, confirming its ability to adapt quickly to new circumstances,” said IfW President Moritz Schularick. “But it is also clear that the energy crisis has left its mark.” However, the outlook for the economy is better than the negative annual rate would suggest, added IfW economic chief Stefan Kooths. “The ingredients that are supporting the economy are still great potential for catching up after the corona pandemic, high order backlogs in industry and soon strong increases in purchasing power with a stable labor market,” said Kooths.
Inflation is declining significantly
The IfW also gives consumers hope that the sharp rise in prices, which is eroding their purchasing power, will subside. “Inflation will fall significantly over the course of the year,” the researchers said. On average, however, consumer prices are likely to rise sharply again by 5.8 percent. A significantly lower inflation rate of around two percent is then emerging for the coming year.
“Prices not rising quite as much, increasing real incomes, a robust labor market and higher consumer spending are likely to be the key to economic recovery in the further course of the year,” said Timm Bönke, co-head of the DIW’s forecasting and economic policy department. However, the DIW still sees major risks. “Continued high inflation and the resulting rise in interest rates could choke off the recovery of the German economy,” warned Geraldine Dany-Knedlik, co-head of the forecast and economic policy department.
Gross domestic product shrank at the end of 2022 and in the first quarter of 2023. Europe’s largest economy is stuck in a recession. Despite the economic downturn, the Kiel experts expect the job market to be robust. The number of people in employment is expected to rise by more than 350,000 this year. The unemployment rate will rise to 5.6 percent, but will fall back to the 2022 level of 5.3 percent in the coming year.