Germany is expecting a recession next year
Germany, plunged into a severe energy crisis, will experience a 0.4% recession and 7% inflation in 2023, according to government forecasts released on Wednesday (October 12). “We are currently experiencing a severe energy crisis that is increasingly developing into an economic crisis,” said Federal Minister of Economics Robert Habeck at a press conference. For this year, expected growth has been revised down to 1.4% and inflation up to 8%, versus 2.2% and 6.1% respectively expected in the latest forecasts in April.
Specifically, the first European economy, which is particularly vulnerable to shocks in the gas market, will suffer negative growth “in the third and fourth quarters of this year and in the first quarter” of 2023, Mr Habeck explained. Berlin then expects a “recovery” for 2024 with growth of 2.3% and inflation of 2.4%. These forecasts confirm the forecasts published on Tuesday by the IMF, which sees Germany, like Italy, tipping into a recession in 2023 just three years after the economic shock of COVID-19.
Massive plan at 200 billion
Germany’s leading economic institutes had expected inflation to rise again to 8.8 percent in 2023. “Without the effects of the gas price freeze, inflation would have been significantly higher in 2023,” the Federal Ministry of Economics estimated. Germany unveiled a €200 billion plan in late September to subsidize the price of household and business energy use until 2024, aiming to curb inflation in 2023. “We cannot allow Putin’s strategy to endanger prosperity and the economy,” Robert Habeck said on Wednesday.
The decline and then the halt in Russian gas supplies to Germany at the beginning of September weighed on the first economy in the euro zone. Germany, which got 55% of its supplies from Russia before the war, had to source elsewhere at much higher prices. These tensions have caused gas and electricity prices in Europe to skyrocket, driving up inflation and production costs in industry, the engine of German growth. Consequence: Industrial production weakens. According to the statistics institute Destatis, it fell by 0.8% in August. Energy-intensive industries such as chemicals, metallurgy, paper and glass are hardest hit. Output from these sectors has fallen nearly 9% since February.
On the other hand, Berlin wants to express itself positively on the question of replacement deliveries from Moscow: “We are on the right track to solving the question of Russian imports,” said Habeck. After diversifying its suppliers by turning to Norway, the Netherlands or the United States, Germany is filling up its gas reserves faster than expected, which have reached a level of 94.67%, close to the 95% target set for early November % lies.
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