German Economy to Stagnate in 2023

“After a further 0.2 percent decline in gross domestic product in the first quarter, the economy will recover in the further course of the year. Starting mid-year at the latest, rising real wages will support Germany’s domestic economy,” says ifo economic researcher Timo Wollmershäuser.

Contributing factors include noticeable increases in collectively agreed wages and a gradual fall in inflation rates. “Inflation has peaked. At 6.2 percent, the average rate in 2023 is expected to be lower than last year’s. In 2024, price increases will then return to normal and inflation will fall to 2.2 percent,” he adds. This will be driven by falling energy prices and a gradual easing of supply problems in manufacturing.

The economic weakness will slow recovery on the labor market somewhat this year. The increase of almost 50,000 in the number of unemployed is mainly attributable to Ukrainian citizens, who will be gradually integrated into the labor market over the forecast period. As early as next year, the unemployment rate is thus expected to fall again to 5.1 percent, after standing at 5.4 percent this year and 5.3 percent last year.

The government budget will remain in the red this year and next, at 1.3 percent and 0.3 percent of economic output respectively. However, the government financing deficit is significantly lower than was expected in December. In particular, the expenditure budgeted for the government’s energy price brakes has been reduced by a good EUR 35 billion in total, because from today’s perspective, the wholesale prices for electricity and gas in the forecast period are lower than expected. The current account balance will rise again to 5.9 percent of economic output by 2024, after falling temporarily to 3.8 percent last year as a result of the sharp rise in import prices.