According to the IFO Institute, the high inflation caused by higher energy prices is leaving its mark on the German economy. According to the autumn forecast, growth this year will be significantly lower than expected. A minus is even to be expected for the coming year.
The Munich IFO Institute has drastically lowered its economic forecast for this year and next, primarily because of the high gas prices. In the coming year, the institute expects economic output to shrink by 0.3 percent, for this year only 1.6 percent growth. "We're going into a winter recession," said Timo Wollmershäuser, head of IFO economic forecasts. However, the IFO does not expect any serious effects on the labor market.
As recently as June, the institute had forecast growth of 3.7 percent in 2023: 4.0 percentage points more than currently. The institute even increased its inflation forecast by 6.0 percentage points to 9.3 percent in the coming year. According to the economic researchers, inflation will peak in the first quarter of 2023 at around eleven percent.
The forecast for the current year lowered the IFO from 2.5 percent growth to 1.6 percent. The economists now expect the inflation rate to be 8.1 percent instead of 6.8 percent.
"The cuts in gas supplies from Russia in the summer and the resulting drastic price increases are ruining the economic recovery after Corona," explained Wollmershäuser. The high rates of inflation caused the real income of private households and their savings to melt away and reduced their purchasing power.
According to the IFO, the ongoing delivery problems with raw materials and preliminary products are hampering production in industry. At the same time, high prices and the global economic downturn are reducing demand. Nevertheless: the order books of the companies are still well above average - the mood in the industry has only deteriorated slightly.
In contrast, the IFO sees a "significant downturn" in the construction industry. In addition to the high construction costs, the main reasons are the turnaround in interest rates, which is also driving up financing costs.
The IFO expects that German energy suppliers will increase their electricity and gas prices, especially at the beginning of 2023 - hence its forecast of eleven percent inflation. "As a result, real household incomes will fall sharply and purchasing power will drop noticeably," explained Wollmershäuser. The federal government's measures from the third relief package are likely to counteract this decline somewhat, but by no means offset it.
IFO President Clemens Fuest told the Tagesspiegel that in future Russia would sell its gas and oil to others "and they would then buy less gas from other sources." Then it goes to Europe. "Restructuring the infrastructure is expensive, but prices should come down again after a while."
Looking ahead to the second half of 2023, the IFO forecast is optimistic: with an increase in wage payments following the conclusion of new collective agreements, "real household incomes are likely to rise again from the middle of the year". That will stimulate the consumer economy. The industry, in turn, will gradually work off the high order backlog and slowly expand production. However, the IFO assumes that the supply bottlenecks will gradually ease and that gas will not have to be rationed this winter.
"In 2024, the economy will gradually normalize again. Economic output is likely to increase by 1.8 percent, and the inflation rate to fall to 2.5 percent," predicts the IFO.
