According to several experts, the German economy will shrink in the coming year - but this should only be felt on the labor market for a limited time at most. By contrast, private consumption, exports and investments are suffering. In addition, prices continue to rise significantly.
Record inflation and recession: In view of rising energy prices, leading institutes outdo each other with negative forecasts for consumers and the economy in Germany. The Halle Institute for Economic Research (IWH) is particularly pessimistic, predicting an inflation rate of 9.5 percent for 2023. This would be well above the inflation rate of 7.9 percent expected for the current year. According to the Kiel Institute for the World Economy (IfW), the worst is yet to come for consumers. If the prices for electricity and gas remain high for a longer period of time as a result of the Russian war in Ukraine, the inflation rate will skyrocket to 8.7 percent in the coming year.
"The German economy is in a downward spiral," is how the IfW economists summarized their forecast. Since private consumption makes up a large part of economic output, the expected loss of purchasing power will have negative consequences for the economy. According to the IWH, gross domestic product will fall by 1.4 percent in 2023, while the IfW expects a decline that is half as strong. In the current year, there should still be growth, but at 1.1 or 1.4 percent it should be lower than assumed in the summer.
"The recent jumps in electricity and gas prices will noticeably reduce the purchasing power of private households," says the IfW. In the coming year, this is likely to fall by 4.2 percent more than ever before in reunified Germany, and as a result private consumption will shrink well into the coming year.
In addition, the global economic downturn is likely to have a noticeable dampening effect not only on exports but also on investments. "As a result, the German economy will slide back into recession - in a phase in which it was just recovering from the setbacks caused by the pandemic," said the Kiel economists. The researchers predict a calming down only for 2024: The RWI - Leibniz Institute for Economic Research from Essen then expects economic growth of 2.6 percent, while the inflation rate is expected to drop to 1.6 percent at the same time.
The economists fear that the recession will also leave its mark on the labor market. "Due to the shortage of skilled workers, however, they should be comparatively small," says the IfW. The colleagues from Halle expect the number of people in work to rise to 45.9 million by 2024. That would be around 900,000 more than in 2021. The number of unemployed should hover around the 2.5 million mark. However, there could be more short-time work again in the coming winter half-year, according to the economists from Halle.
Government borrowing should also be limited. While the general government financing deficit was still 3.7 percent of gross domestic product last year, it is expected to fall to 1.1 percent in 2023 despite the expected recession - mainly because tax and contribution revenues will increase noticeably as well as pandemic aid and some of the measures from the relief packages have already been dropped.
