The gas crisis is hampering the development of the German economy, which will not be able to escape a recession in 2023, according to the joint autumn report of Germany’s main economic research institutes, presented this Thursday.
The institutes paint a picture of soaring energy prices, rising production costs that lead to increases in other products, and inflation levels not seen since the 1970s.
In the midst of it all, a positive factor is a certain stability in the labor market where, despite the decreasing demand for labour, companies are making efforts to retain their employees despite staff shortages.
“The Russian attack on Ukraine and the ensuing crisis in the energy markets have led to a clear recession in the German economy,” said Torsten Schmidt, an expert in economic analysis at the Leibniz Institute for Economic Studies in Essen (RWI), during the presentation of the joint report “Energy crisis: inflation, recession, loss of wealth”.
“High energy and food prices, which will continue to rise next year, are leading to a loss of purchasing power,” he added.
This situation means that low-income households and businesses still need government assistance.
However, Schmidt warned that it is important for companies to be careful not to create permanent subsidies.
Faced with the crisis, the institutions have nearly halved their growth forecasts for this year, to 1.4% after the decline in the second half of the year.
The continued growth is due to the good performance in the first quarter.
In the spring, the institutes had forecast a growth of 2.7% for 2022 and 3.1% for 2023, while they now expect a recession of 0.4%. They estimate a growth of 1.9% for 2024.
However, the institutes also calculated an extreme scenario in which the winter is too cold, resulting in a gas shortage. In this case, experts estimate that the economic slowdown could reach 7.9% in 2023.
In this case, in an extreme scenario, the recession would continue into 2024 with a fall in Gross Domestic Product (GDP) of 4.2%.
According to the institutes, the downward revision for this year already shows the scale of the energy crisis, which means that GDP in 2022 and 2023 will be 160 billion euros lower than estimated in the spring.
Inflation rates will remain high. In 2023, annual inflation is expected to be 8.8%, slightly above the 8.4% estimated for this year.
According to the institutes, it will not be possible to reach 2% again until 2024.
The institutes note that the main reason for the deterioration of the economic situation is the reduction of gas supplies from Russia.
This created the risk that stocks from other suppliers and reserves could not meet winter demand, causing gas prices to rise in the summer.
Although the institutes do not expect gas shortages in the coming months – unless an extreme winter comes – the situation remains tense and prices will remain well above pre-crisis levels, which they say means “a permanent loss of wealth. Germany”.
On the labor market, the institutes expect unemployment to rise slightly to 5.5% in 2023, after 5.3% in 2022, a level they are expected to reach again in 2024.
The RWI in Essen, the IWH in Halle, the IFO in Munich and the Institute for World Economics (IfW) in Kiel were the German institutes that produced the joint report.
The study is one of the foundations on which the German government makes its own economic forecasts, which in turn serve as the basis for tax collection forecasts.
Source: DN
