GDP falls, inflation rises: DIW: "Recession is becoming more and more likely"

The economic prospects are becoming increasingly gloomy: the DIW is already anticipating a fall in gross domestic product for the third quarter, while consumer prices are likely to continue to rise.

GDP falls, inflation rises: DIW: "Recession is becoming more and more likely"

The economic prospects are becoming increasingly gloomy: the DIW is already anticipating a fall in gross domestic product for the third quarter, while consumer prices are likely to continue to rise. The service industry can no longer support the economy either.

According to the German Institute for Economic Research (DIW), the German economy is probably heading for a recession. The DIW announced that a decline in gross domestic product (GDP) is to be expected in the third quarter. "Unfortunately, it is becoming more and more likely that we will go through a recession with high inflation at the same time," said DIW economic expert Guido Baldi. In addition, risks remained on the downside.

The energy crisis is already forcing many gas suppliers to sign new contracts and massively increase prices. Against this background, inflation will also remain high. Goods and services were an average of 7.9 percent more expensive in August than a year earlier. Some economists expect the inflation rate to rise to ten percent by the end of the year - also because additional burdens such as the gas surcharge will be imposed on citizens. Adjusted for inflation, many people are already confronted with significant wage losses.

According to the DIW, the cooling global economy is also having a negative impact on the export-oriented German economy. The greatest effects are therefore still evident in industry. According to the DIW, the war in Ukraine, the weakness of the global economy and the resulting uncertainty are reducing incoming orders on the one hand and hampering material deliveries and production processes on the other. In addition, concerns about the energy supply are growing.

In the spring, after the pandemic had abated, the services still had a supportive effect on the German economy. But this is where problems started to appear. Persistently high inflation is leading to noticeably lower household purchasing power and the prospects remain poor. "Concerns about the gas supply and high energy prices are having a massive impact on consumer spending, especially among people with low and middle incomes," says DIW expert Baldi.