European Commission Predicts Contraction in German Economy for 2023

12 Sep, 2023

European Commission Predicts Contraction in German Economy for 2023

The European Commission's latest forecast for Germany's economy in 2023 predicts a contraction of 0.4%, which is a downward revision from the previous projection of 0.2%. This contraction is attributed to high inflation, primarily driven by factors such as the Russia-Ukraine crisis.

The country's GDP is anticipated to rebound by 1.1% in 2024, which is lower than the earlier projection of 1.4%. This downward revision is attributed to a slump in the construction sector and a slowdown in exports.

Several factors are hindering Germany's economic growth, including weak consumption and reduced construction investment. However, there is an increase in investment in equipment, which may partially offset some of these negative effects.

Despite weak external demand, net exports are expected to have a positive contribution to growth in 2023 due to a decrease in imports.

In terms of inflation, the European Commission forecasts headline inflation for Germany in 2023 to be 6.4%, a decrease from the 8.7% rate seen the previous year. The commission attributes this decline in inflation to a reduction in energy and service price inflation during the first half of 2023, although service inflation is expected to remain elevated due to rising wages.

It is anticipated that in 2024, Germany's headline inflation will decrease to 2.8%, primarily attributed to a gradual slowdown in both goods and energy costs.