German economy sinking in recession in 2023, predicts European Commission
German economy to contract in 2023, with an expected GDP shrinkage of 0.4%. Inflation is expected to decrease to 6.4% in 2023
PremiumBearing the brunt of high inflation driven by factors like Russia-Ukraine crisis, German economy is expected to contract in 2023, predicted European Commission on Monday.
The recent cut in forecast has come at a time when Euro's biggest economy is facing high inflation and the spill over effect of Russia-Ukraine war. Now, Germany's GDP is predicted to shrink by 0.4% in 2023 against 0.2% projected previously.
Notably, weak consumption and a decline in construction investment are expected to negatively impact growth. However, there has been an increment in investment in equipment, said European Commission.
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Despite weak external demand, net exports are expected to contribute positively to growth in 2023 due to falling imports. EC also predicted Germany's GDP to to rebound by 1.1% in 2024, which is less than the 1.4% projection made in the spring. The cut in prediction is the result of a slowdown in the construction sector and slump in exports.
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Euro zone expected to grow slower, says EC
The European Commission also predicted that Germany's slow growth will drag euro zone's economy slower. The main reason behind the slump in growth would be high inflation and Germany's economic state. The country is expected to slip into recession this year, predicted EC.
In its interim forecast for GDP and inflation of euro zone's five biggest countries, the Commission siad the single currency area's GDP (gross domestic product) would expand 0.8% in 2023 and 1.3% in 2024, against forecasts of 1.1% and 1.6% respectively made in May.
In first half of 2023, energy and service price inflation reduced more than expected. However, the service inflation will remain high due to rise in wages. There are also chances of sticky headline inflation due to high food prices and core inflation. Next year, country's headline inflation is expected to fall to 2.8%, mainly because of gradual slowdown in goods prices and energy prices.
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