Eurozone’s biggest economy won’t escape recession this year, warns Ifo researcher
Germany is facing a winter recession as the economy continued to contract amid a worsening cost-of-living crisis, the Ifo Institute for Economic Research reported on Wednesday.
In the first quarter, gross domestic product (GDP) is expected to decline by 0.2%, the report suggests. The economy contracted by 0.4% in the fourth quarter of 2022 compared to the previous three months. A recession is defined as two successive quarters of contraction.
The Ifo forecasts that economic output in 2023 will remain at about the same level as the previous year, contracting by 0.1%.
“After another 0.2% decline in gross domestic product in the first quarter, the economy will recover later this year. From the middle of the year at the latest, rising real wages will support the German national economy,” Ifo economics researcher Timo Wollmershäuser said.
According to the Ifo, high inflation rates are currently impacting consumer spending and construction activity due to declining purchasing power and significantly rising financing costs. At the same time, industrial activity is picking up thanks to the easing of bottlenecks in the supply of intermediate products and the sharp fall in energy prices.
At 6.2% on average, the inflation rate in 2023 will be only slightly lower than the previous year. The rate is not expected to fall to 2.2% until next year, the institute wrote.
“We have reached the peak of inflation” Wollmershaeuser said, noting however that the sharp increase in wages is creating further pressure on prices.
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