According to the EU, the German economy will shrink in 2023

DIn terms of economic growth, Germany is developing at the bottom of the table in the euro area and EU. According to the European Commission’s autumn forecast, German gross domestic product (GDP) will grow by another 1.6 percent this year, but will then fall by 0.6 percent in the coming year. Along with Latvia (minus 0.3 percent), Germany is the only euro country for which the Commission predicts negative growth for the year as a whole. The main reason for the weak development in Germany is the high energy prices.

According to the Commission’s analysis, since these would remain high well into 2024 and the aid programs would only partially relieve households, private consumption will fall this winter and only recover slowly. Economic activity will be dampened in the coming quarters by the fact that energy-intensive products will no longer have to be manufactured in-house and replaced by imports. The order backlog is still high, but is declining, it is said. The delivery bottlenecks would decrease, but further restricted production.

Gloomy forecast for the euro area

The Commission’s forecast is therefore more pessimistic than that of the Federal Government and the economic experts, who expect a minus of 0.4 percent and 0.2 percent respectively. In its last forecast from the summer, the commission had even forecast growth of 1.3 percent for 2023. For comparison: the French economy is expected to grow by 0.4 percent in 2023, the Italian by 0.3 percent. In 2024, the German economy is expected to grow again by 1.4 percent. That would still be below the euro area average for which the Commission growth expected of 1.5 percent.

EU Commissioner Paolo Gentiloni presented the EU Commission's autumn forecast in Brussels on Friday.

EU Commissioner Paolo Gentiloni presented the EU Commission’s autumn forecast in Brussels on Friday.

Image: Reuters

All in all, the EU Commission is expecting hardly any economic growth next year due to the energy crisis resulting from the Ukraine war – but with significantly higher inflation than recently. In 2023, GDP in the euro area is only likely to increase by a meager 0.3 percent. In the summer, the EU had estimated growth of 1.4 percent here. For the final quarter of 2022, the Commission assumes that the eurozone as a whole and most of its member countries will slide into recession. The reasons for this are great uncertainty, high pressure on energy prices, a loss of purchasing power in private households, the weaker foreign trade environment and stricter financing conditions.

However, due to surprisingly good growth in the first half of 2022, the economy is likely to grow by 3.2 percent for the year as a whole and thus more than the 2.6 percent expected in the summer. Inflation, on the other hand, is likely to be stronger than already assumed. The Commission now expects 8.5 percent in 2022 and 6.1 percent next year. The inflation rate will not drop significantly to 2.6 percent until 2024.

There is even a risk that the European and, above all, the German economy will develop even worse than forecast by the Commission. There is a great risk that the forecasts will have to be revised downwards, said the Commissioner for Economic and Monetary Affairs, Paolo Gentiloni, when presenting the autumn forecast. The greatest danger is that the development on the gas market will deteriorate and that there will be supply bottlenecks. This applies above all to the winter of the coming year. If the EU does not succeed in compensating for the Russian gas supply freeze by importing it from other countries and reducing consumption sufficiently, there will be enormous economic costs. The economy could then fall another 0.9 percentage points in 2023 and another 0.5 percentage points in 2024.

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