The fear of winter dominated the past year. Many feared blackouts and cold heaters. “In the winter months of 2022/2023, the German economy is likely to slide into a recession,” the Federal Ministry of Economics warned in a press release Economic forecast in November. In the meantime, however, optimism is spreading again. In its most recent forecast, the federal government is even assuming slight economic growth again this year.
So will the feared recession fail? Economists asked themselves this question at the so-called Leibniz Economic Summit on Tuesday. Ifo boss Clemens Fuest says: “We’re right on the border – so probably already.” But a recession will be rather shallow. Surprisingly, gross domestic product (GDP) fell by 0.2 percent in the last quarter of 2022, after having increased by 0.5 percent in the summer quarter. If there is a second minus in a row in the current first quarter, economists speak of a technical recession.
“The risks and uncertainties have rarely been greater than they are today,” added Marcel Fratzscher, who heads the German Institute for Economic Research. “We must not confuse growth with prosperity,” he warned, referring to the sharp fall in real wages of more than four percent. “It is completely understandable that wages were not fully compensated for inflation,” Fuest objected. Germany has become poorer in real terms, particularly as a result of rising energy prices. According to Fuest, this circumstance must inevitably be reflected in falling wages.
Long-term higher prices for electricity and gas will also keep Germany busy as a business location beyond this winter. Energy-intensive companies would possibly shift their production to other countries in the coming years. However, the economists of the Leibniz Association do not take a critical view of this. If German companies go bankrupt, it could even be an economic advantage. This could create new, more innovative companies.
Stefan Kooths from the Kiel Institute for the World Economy therefore speaks out against subsidies, for example to bring industries that have migrated back to Germany. They would even harm economic growth, since the required production capacities would have to be diverted from other sectors. In times of a shortage of skilled workers and well-filled order books, the German economy cannot afford that. Instead, Germany should rely on international partners such as the USA for energy-intensive goods.