Leading economic institutes in Germany predict the economy will go into recession next year. Inflation and soaring energy prices are among the key contributors
A forecast by a leading group of think tanks has painted a bleak picture for Germany’s economic prospects.
According to the think tanks’ projections published on Thursday, the crisis in the gas markets, spiraling energy prices and a massive drop in purchasing power would push the German economy into recession.
The high cost of energy was the leading factor “driving Germany towards recession,” said Torsten Schmidt who heads up economic research at the RWI think tank.
Schmidt told a media briefing that Europe’s largest economy would shrink over the second half of 2022 “before moving into a recovery phase early next year.”
Incomplete recovery from the global pandemic was among the factors contributing to Germany’s economic future.
Inflation expected to average at 8.8 percent
“In the coming year, inflation will likely rise even further to an average of 8.8 percent for the year,” Munich’s ifo Institute said in a statement.
Inflation was being spurred on by rising energy prices which have soared since the Russian invasion of Ukraine.
However inflation was expected to settle down in 2024, “to be only slightly above the ECB’s target rate of 2 percent.”
German GDP was also expected to shrink by 0.4 percent in 2023, down from April’s estimate of 3.1 percent growth, before rebounding back to a state of growth in 2024.
The forecasts came Thursday as part of the so-called Joint Economic Forecast, which is prepared twice a year by the ifo Institute in Munich, the Kiel Institute for the World Economy, the Halle Institute for Economic Research (IWH), and the RWI – Leibniz Institute for Economic Research.