Not only the euro area, but also the German economy is heading for a recession. IfW Kiel , GDP is expected to increase by 1.4 percent in the current year, which is 0.7 points less than expected in the summer forecast. For 2023, the experts are revising their forecast downwards by four percentage points - the German economy can therefore expect a decline of 0.7 percent.

“Economic avalanche” caused by the energy crisis

According to the IfW Kiel, inflation is likely to be even higher next year at 8.7 percent than this year at eight percent. Compliance with the debt brake appears possible in 2023, but it could be difficult in 2024, it is said.

“With the high import prices for energy, an economic avalanche is rolling towards Germany. “Energy-intensive production and consumer-related economic sectors in particular will be hit hard.”

Stefan Kooths, Vice President and Head of Economic Affairs at IfW Kiel

The German energy import bill is expected to rise by 123 billion euros this year and by a further 136 billion euros in 2023. There is then no money for domestic consumption and this reduces the profitability of energy-intensive companies. Germany's economic power is falling sharply and will be around 130 billion euros lower in 2023 than previously expected by the IfW Kiel. The purchasing power of private households is expected to fall by 4.1 percent in 2023, more sharply than ever before in reunified Germany.

Inflation will not fall until 2024

According to the forecast, value creation in Germany is now expected to decline until 2023 and only turn slightly positive again in the third quarter of 2023. For 2024, the IfW Kiel expects GDP growth of 1.7 percent. Inflation is likely to rise even further as the high energy prices are only gradually reflected in end consumer tariffs and also in goods and services. The Kiel economic researchers conclude that the price pressure will not ease more significantly until 2024 and the rate will be 3.1 percent.

Source: press release

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