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German Economy to Shrink More Than Expected

A shopping street in the German city of Stralsund - Economy. Stefan Sauer/picture alliance/Getty Images

BNR – The German economy will shrink greater than anticipated this year as high inflation weighs on private consumption. This data is based on forecasts from the Ifo Institute.

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

The German economy is expected to contract by 0.4% this year. The figure is higher than the 0.1% predicted 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. According to Ifo, the eurozone GDP will grow by 0.6% this year, while US GDP will grow by 0.9%.

The economic institute has also reduced Germany’s GDP growth forecast for 2024 to 1.5%. The new percentage is lower than the 1.7% predicted previously.

Inflation is expected to gradually decline from 6.9% in 2022 to 5.8% this year, then to 2.1% in 2024.

The Ifo Institute predicts that core inflation will rise to 6% this year, up from 4.9% last year. This is before it drops to 3% in 2024.

Impact on the Economy: Declining Private Consumption

According to the Economic Institute, private consumption will decrease by 1.7% this year due to inflation. It isn’t projected to rise again until 2024, when it is expected to rise by 2.2%.

In 2023, the number of unemployed people will increase slightly. The unemployment rate, however, will remain the same from last year at 5.3% this year, increasing to 5.5% in 2024.

According to Ifo, new government borrowing will decrease from 106 billion euros ($115 billion) in 2022 to 69 billion this year and 27 billion in 2024.


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