German recession will be worse than feared: institutes

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A recession in Germany this year will be worse than previously feared, leading economic institutes warned Thursday, as high inflation and an industrial slowdown hit Europe’s top economy.

The economy will shrink 0.6 percent in 2023, the institutes said in their latest joint forecast. They had all flagged in recent months that a downturn was expected, although the figure is worse than those previously mentioned.

“The most important reason for this revision is that industry and private consumption are recovering more slowly than we expected,” said Oliver Holtemoeller, from the Halle Institute for Economic Research, one of the five groups behind the forecast.

German policymakers face challenges on multiple fronts — from still-high inflation that began surging after Russia invaded Ukraine, to weakness in manufacturing and the impact of record eurozone interest rates.

Problems in the global economy, and in particular a slow recovery from the pandemic in Germany’s top trading partner China, are also weighing on the exporting powerhouse.

There were positive signs at the start of the year that Germany may have weathered the energy crisis better than expected, but Thursday’s forecasts are just the latest gloomy signal in recent months.

The economy fell into recession around the turn of the year, and has struggled to recover since, with growth stagnating in the second quarter.

The last joint economic forecast released in April had forecast growth of 0.3 percent in 2023. However, since then some of the institutes involved had separately forecast a contraction this year, although their predictions were less gloomy than the latest joint forecast.

The IMF has predicted that Germany will be the only major advanced economy to shrink this year. The European Commission earlier this month said it expects the German economy to contract by 0.4 percent this year, compared to a previous forecast of 0.2 percent growth.


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