Germany’s Recession Milder than Expected
The recession expected to hit Germany this winter will be milder than previously anticipated. This is a finding from the ifo Institute’s latest forecast, according to which Germany’s economic output will shrink by only 0.1 percent in 2023. In the fall, ifo researchers were still expecting minus 0.3 percent. The ifo Institute has also revised its forecast for economic output growth in 2022 upward: to plus 1.8 percent from plus 1.6 percent. “The third quarter of 2022 in particular was much better than expected, with plus 0.4 percent. In the two quarters of the 2022–23 winter half-year, gross domestic product will shrink, but after that things will start to pick up again,” says Timo Wollmershäuser, Head of Forecasts at ifo. In 2024, the economy will grow again by 1.6 percent.
The rate of inflation will fall from 7.8 percent this year to 6.4 percent next year. Both figures are significantly lower than was assumed in the fall because they now take into account Germany’s electricity and gas price brakes. For 2024, the Institute expects the rate to fall to 2.8 percent. The strong pressure driving prices upward will reduce private households’ real disposable incomes, especially in the winter half year, and thus cool the economy. It is only from the second half of the year onward that incomes are likely to rise more strongly than prices, and private consumption is therefore likely to gather speed.
Short-time work is expected to rise again temporarily in the winter half-year. At the same time, employment growth will largely come to a standstill and will pick up again at a sluggish pace only in the remainder of the forecast period. Growth in the number of people in employment is expected to slow from about 554,000 in 2022 to 77,000 in 2023 and 80,000 in 2024. Unemployment is projected to rise by 84,000 next year and decline again by 117,000 in 2024. This means the unemployment rate will rise from 5.3 percent this year to 5.5 percent in 2023 before slipping back down to 5.3 percent in 2024. All these forecasts assume that there will be no gas shortage in the next two years.
ifo Schnelldienst Sonderausgabe Dezember 2022
ifo Institut, München, 2022
