Germany’s gross domestic product (GDP) for the year 2023 may witness a 0.6 per cent decline, as per a recent report. This marks a significant downward revision of 0.9 percentage points compared to predictions made earlier in the spring.
Struggling for over a year, Germany’s economic downturn intensified with the surge in energy prices in 2022. This rise has inflated consumer prices by over 8 per cent, thereby affecting the purchasing power of households. Key interest rates have also climbed by over four percentage points, adversely impacting the construction industry, according to the Joint Economic Forecast prepared by the German Institute for Economic Research (DIW Berlin), the ifo Institute (Munich), the Kiel Institute for the World Economy (IfW Kiel), the Halle Institute for Economic Research (IWH), and RWI (Essen).
A recent report has suggested that Germany may see a 0.6 per cent drop in GDP for 2023, revising earlier spring forecasts downward by 0.9 percentage points.
The country’s economic downturn has worsened due to surging energy prices and climbing interest rates.
Improvements are expected by year-end, and GDP growth of 1.3 per cent is projected for 2024.
“The primary factor for this downward revision is the slower-than-anticipated recovery of industry and private consumption,” commented Oliver Holtemöller, vice president and head of the macroeconomics department at the IWH.
Business sentiment has been negatively affected recently, due in part to heightened political uncertainty. However, there are signs of improvement on the horizon. Wage hikes have kept pace with increasing prices, energy costs are dropping, and exporters are managing to pass on some of their elevated costs. These factors suggest a resurgence in purchasing power and are expected to mitigate the downturn by year-end.
Looking ahead to 2024, the institutes project a GDP growth of 1.3 per cent, only slightly lower than their spring forecast. However, a shrinking labour force in the coming years is expected to curtail potential growth rates.
The economic downturn has begun to affect the labour market. Unemployment is expected to increase moderately to 2.6 million people in 2023, but it is likely to decrease somewhat in the following year.
As for inflation, the institutes anticipate rates to drop to 6.1 per cent in 2023 and further to 2.6 per cent in 2024, with core inflation hovering around the same levels.
Fibre2Fashion News Desk (KD)
