BERLIN (Reuters) – The German economy is expected to shrink by 0.3% this year as inflation and tighter financing conditions weigh on consumption and investment, the European Commission said on Wednesday.
For comparison, the German government expects its economy to contract by 0.4% in 2023.
The euro zone’s largest economy faces the highest interest rates in a decade, persistent inflation and sluggish international trade. The drop in industrial production and the decline in the construction sector are also weighing on activity.
From next year, domestic demand is expected to improve, driven by an increase in real wages. Associated with the recovery in external demand, this development should promote an acceleration in growth of gross domestic product (GDP), which would reach 0.8% in 2024 and 1.2% in 2025, according to the autumn 2023 economic forecasts. of the Commission.
The Commission’s forecasts are significantly less optimistic than those of the German government, which expects the economy to rebound by 1.3% in 2024 and 1.5% in 2025.
For the whole of 2023, harmonized inflation is expected to fall to 6.2%, according to Commission forecasts.
Inflation should then continue to fall, but less rapidly, to reach 3.1% in 2024 and 2.2% in 2025.
Germany’s public finances are starting to improve, with a gradual reduction in public deficits and debt-to-GDP ratios, the Commission adds.
In 2023, the German public deficit is expected to fall to 2.2% of GDP, compared to 2.5% in 2022, with the gradual abandonment of measures to combat the COVID-19 pandemic.
In 2024, the public deficit should further decrease to reach 1.6% of GDP, according to Commission forecasts.
(Report by Maria Martinez, French version Corentin Chappron, edited by Kate Entringer)
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