Expensive energy, inflation and interest rate increases – all of this is apparently hitting Germany harder than expected. The federal government therefore expects the economy to shrink in 2023.
Germany needs more time to recover from the jumps in energy prices as a result of Russia’s war of aggression against Ukraine: The federal government corrected its economic forecast and now expects economic output to shrink this year. This means that Germany will probably be the only large industrial country that will not grow in 2023.
Habeck refers to international conflicts
Federal Economics Minister Robert Habeck (Greens) referred to international conflicts and the necessary interest rate increases by the ECB to combat high inflation. “We are therefore emerging from the crisis more slowly than expected,” said Habeck.
Specifically, the government now expects economic output to shrink by 0.4 percent instead of the previous increase of 0.4 percent. In 2024 and 2025 there should be growth rates of 1.3 and 1.5 percent again. For comparison: in 2022 it was 1.8 percent.
Robust labor market provides stimulus
Habeck expects a weak third quarter of 2023, but then an improvement, especially next year. Impulses are likely to come from private consumption – given rising wages and a robust labor market. In the first half of 2023, nominal wages rose more sharply than they did in 2008.
“Germany must address structural problems”
Germany must now address the structural problems, said Habeck. Bureaucracy must be reduced, more skilled workers must be attracted from abroad and obstacles to investment must be removed.
Given the high inflation, the government expects a noticeable easing. After an inflation rate of 6.1 percent this year, values of 2.6 and 2.0 percent are forecast for 2024 and 2025. The European Central Bank (ECB) is aiming for two percent as the ideal level for the euro zone.