Grim economic forecast issued for Germany

Germany is facing a recession this year as the economy has continued to shrink amid the deepening cost-of-living crisis, the Ifo Institute for Economic Research reported on Wednesday.

In the first quarter, gross domestic product (GDP) is expected to fall by 0.2%, the report suggests. The economy contracted by 0.4% in the fourth quarter of 2022 compared to the previous three months. A recession is defined as two successive quarters of contraction.

The Ifo forecasts economic output in 2023 to remain at roughly the same level as the year before, contracting by 0.1%.

“After a further 0.2% 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,” Ifo economic researcher Timo Wollmershäuser said.

According to the Ifo, high inflation rates are currently impacting consumer spending and construction activity through falling purchasing power and significantly increased financing costs. At the same time, industrial activity is recovering due to easing supply bottlenecks for intermediate products and sharp falls in energy prices.

At an average of 6.2%, the inflation rate in 2023 will only be slightly lower than a year prior. The rate is not expected to fall to 2.2% until next year, the institute wrote.

“We have reached the peak of inflation,” Wollmershaeuser claimed, noting however that the strong increase in wages is creating new price pressure.

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