In the Joint Economic Forecast by five leading economic institutes, Germany is bracing for an economic contraction of -0.6% in 2023, a significant downward adjustment by 0.9% from the spring 2023 prediction. Nevertheless, the silver lining comes in the form of anticipated rebounds in the following years: Growth of 1.3% in 2024 and 1.5% in 2025. Notably, the 2024 figure represents a mere 0.2% adjustment from their spring forecast.
On the inflation front, CPI is expected to moderate from 2022’s staggering 6.9% to a still elevated 6.1% in 2023, before cooling off substantially to 2.6% in 2024 and 1.9% in 2025. Labor market is anticipated to feel a slight pinch with unemployment ticking up from 5.3% in 2022 to 5.6% in both 2023 and 2024, before retracting to 5.3% in 2025.
The report highlights, “Business sentiment has recently deteriorated again, not least because of heightened political uncertainty.” The third quarter of 2023 experienced a noticeable fall in production, attributed to the waning business sentiment.
Despite the bleak outlook, there are silver linings. The tailwind of wage increases following the price hike, declining energy prices, and exporters partially offsetting their higher costs offers a semblance of balance, and as a result, purchasing power is making a comeback.
“Therefore, the downturn is expected to subside by the end of the year, and the degree of capacity utilisation will rise again going forward,” adds the report.
This biannual Joint Economic Forecast is commissioned by German Federal Ministry for Economic Affairs and Climate Action. Contributors to this report comprise of eminent institutes including DIW Berlin, ifo Institute, IfW Kiel, IWH, and RWI.
