Germany’s economy will continue to contract. The recession may get worse in the locomotive of Europe, with alarms for industries.
Germany’s economic woes are not over, and the technical recession already reported could be even worse.
The German economy will contract more this year than previously expected, as sticky inflation will affect private consumption: this is the gloomy forecast of the Ifo Institute during the presentation of its estimates on June 21st.
Added to this is the reflection of Siegfried Russwurm, head of the Federation of German Industry (BDI), according to which German energy prices are so high that some companies are considering abandoning the whole country.
A mix of turbulence is therefore attacking the locomotive of Europe, with the only certainty that in this period of necessary commercial and geopolitical changes, Germany is called to rethink its production system.
Recession in Germany: is it just the beginning?
The recovery in Germany still appears a long way off.
German Gross Domestic Product is expected to fall by 0.4% this year, more than the 0.1% forecast by the Ifo Institute in March. The economic institute also cut its forecast for 2024 to 1.5%, down from the 1.7% previously expected.
“The German economy is emerging from recession, but only very slowly”, said IFO’s economic forecaster Timo Wollmershaeuser.
inflation is expected to decrease at a mild pace, from 6.9% in 2022 to 5.8% this year, down to 2.1% in 2024. Due to still high prices, this Private consumption will fall by 1.7% this year, according to forecasts. It won’t increase again until 2024 when it should register +2.2%.
The number of unemployed will rise slightly in 2023, but the unemployment rate will remain unchanged from the previous year at 5.3% this year, rising to 5.5% in 2024.
These numbers hide a alarm for all of Europe: with the economic power of the bloc struggling, while the world is shocked by the war in Ukraine and the heated rivalry between the US and China that undermine trade relations, it is the entire European region hanging in the balance, considering the weight of Germany’s GDP.
Meanwhile, the Federation of German Industry has added its own "sobering" forecast for Germany’s future, predicting a flat line in gross domestic product in 2023 compared to the previous year.
“A +2.7% of GDP globally and zero for us clearly says: Germany is lagging behind”, said Russwurm, head of the federation, in a note.
Data from the German statistics office on May 25 also showed a downward revision of German GDP for the first three months of 2023, pushing the economy into a technical recession. The growth was originally expected to be zero but was changed to -0.3%.
German industry on high alert: escape from Germany?
electricity and gas prices hit record highs across Europe in 2022 after Russia’s invasion of Ukraine, and soaring costs continue to fuel stubbornly high inflation in mainland Europe and the UK United.
In May, the German government revealed plans to allocate around 4 billion euros each year to subsidize electricity prices for energy-intensive industries, in a bid to shield some businesses from high costs.
However, this measure may not be enough. “Many family-owned businesses…have very operational plans for relocation”, Russwurm said, adding that current business conditions in Germany have created a “cocktail” of hurdles for the companies.
“Many Germany-based businesses are doing well globally, but are struggling with operations at home”, he added, listing bureaucracy and administrative slowness as additional pressures companies face in the current climate.
Economy Minister Robert Habeck addressed the issue of companies looking to relocate elsewhere in his speech on the second day of BDI’s Day of Industry conference in Berlin on Tuesday.
“In my opinion, Germany is an attractive place for both new and existing companies”, he said as reported by CNBC. “Of course, the materials industries are under pressure from rising energy prices, but there are political decisions to be made”.
Germany, therefore, also has a different way to go to get its economy back on track. Original article published on Money.it Italy 2023-06-21 15:39:19. Original title: Perché la recessione in Germania sarà peggiore del previsto
