German recession will be sharper than expected

The German economy will contract more than previously expected this year as sticky inflation takes its toll on private consumption, the Ifo Institute said on Wednesday while presenting its forecasts.

“The German economy is only very slowly working its way out of the recession,” Ifo’s head of economic forecasts, Timo Wollmershaeuser, said.

German gross domestic product is expected to fall by 0.4 per cent this year, more than the 0.1 per cent forecast by the Ifo Institute in March.

“When we compare Germany with our main trading partners, these countries are at least expected to post growth,” Wollmershaeuser said. Ifo forecasts eurozone GDP will expand by 0.6 per cent this year and the US by 0.9 per cent.

The economic institute has also cut the forecasts for Germany in 2024 to 1.5 per cent GDP growth, down from the 1.7 per cent it previously expected.

Inflation is forecast to ease slowly from 6.9 per cent in 2022 to 5.8 per cent this year, down to 2.1 per cent in 2024. Regarding core inflation, the Ifo Institute forecasts it will increase to 6 per cent this year from 4.9 per cent in the previous year, before falling to 3 per cent in 2024.

Due to inflation, private consumption will fall by 1.7 per cent this year, the economic institute forecasts. It will not rise again until 2024, when it is expected to post a 2.2 per cent increase.

The number of unemployed will rise slightly in 2023, but the unemployment rate will remain unchanged from the previous year at 5.3 per cent this year, rising to 5.5 per cent in 2024.

New government borrowing will fall from 106 billion euros ($115 billion) in 2022 to 69 billion this year and 27 billion next year, according to Ifo’s estimates.

($1 = 0.9162 euros)