FRANKFURT: Germany is expected to avoid recession this year, the government said on Wednesday, as Europe’s biggest economy grapples with the fallout from the Ukraine war more than expected.
A new forecast from the Ministry of Economy has confirmed the positive signs that have been increasing since the end of the year, eliminating the cold weather in the country.
Germany is expected to register a growth of 0.2% in 2023, according to the government, while Berlin was still expecting a decrease of 0.4% in GDP this autumn against the backdrop of rising energy prices for the industrial sector and a decrease in purchasing power. .
After a growth of 1.9% in 2022, Germany has “held” the Ministry of Economy, whose report emphasizes the “sustainability” of activity in the face of the energy crisis.
In particular, he praises the energy savings of individuals and businesses after Russia gradually cut off its gas supply last year.
“Thanks to these efforts, the economic outlook for 2023 is better than expected,” the ministry added.
“We expect the economic situation to improve from spring,” Elga Bartsch, head of economic policy at the ministry, told reporters.
Before that, Germany could experience two quarters of a slowdown in growth, a technical recession “shorter and softer, if it happens, than our autumn forecast”, continued with the Minister of Economy. Robert Habeck.
A nice surprise
Before the deputies of the Bundestag on Wednesday, Chancellor Olaf Scholz even confirmed that his government is in a position to “end the economic crisis”.
“No one expected that we would live easily in a situation where there would be a complete shutdown of Russian gas supplies to Germany,” he admitted last week.
The energy crisis, caused by the war in Ukraine, has shaken Germany’s economic model, which is mainly based on large imports of cheap gas from Russia.
Inflation rose, while the cost of industrial production, Germany’s engine of growth, fueled fears of a major economic crisis.
The German economy has so far weathered the worst of falling energy prices in recent months, taking advantage of Europe’s mild winter, and Berlin’s efforts to increase its supply of liquefied natural gas.
Berlin has also allocated a budget of more than 200 billion euros to support purchasing power and trade, to finance an energy price shield.
Thanks to the arresting effect of the end of the Covid-19 pandemic, private consumption took over the role of activity pillar in 2022.
But it is now “rocked” by inflation, warned Ms Bartsch.
So that the manufacturing sector and exports in particular, which struggled last year, will again serve as the leader of the economy in 2023, according to the ministry.
Falling energy prices helped inflation ease from October’s peak of 10.4% year-on-year.
The Ministry of Economy expects this trend to continue: it expects inflation to drop to 6% this year, after an average of 7.9% in 2022, a record in post-war Germany.
The crisis is not over yet. “Not falling off the cliff is one thing, preparing a strong current is another,” analyzes Carsten Brzeski, economist at ING Bank.
On the one hand, German export-oriented economic activity should benefit from the slowdown in Chinese supply chains, hampered during the lockdown months, and low inflation could revive German consumer demand.
But industrial production remains 5% below its pre-crisis level, Brzeski says.
Uncertainty still weighs on energy reserves for the winter of 2023-2024 and industrial orders are down by almost a year.
The government, which recognizes that “uncertainty” still weighs, must continue to secure energy supplies, strengthen Germany’s competitiveness and its “strategic independence”, the report shows.