German GDP to shrink 0.5 pct in 2023

Berlin, Germany | Xinhua | The real gross domestic product (GDP) of Germany, Europe’s largest economy, is projected to shrink by up to 0.5 percent in 2023, the German Economic Institute (IW) said on Tuesday.

The drop is driven by high inflation and interest rates as well as by problems in foreign trade, it added.

“The German economy is in a state of shock,” the IW said in a statement. “Because German companies are particularly affected by global fluctuations, they are feeling the global problems all the harder this year.”

International orders have been declining for some time due to the “weak global economic momentum,” while the price competitiveness of German companies “deteriorated significantly,” the IW noted. Adjusted for inflation, total exports are to fall by 1 percent year-on-year in 2023.

In June, industrial production already fell by 1.5 percent compared with the previous month, according to the Federal Statistical Office (Destatis). At the same time, the order backlog of Germany’s industry rose slightly despite a decline in the car industry.

German consumer prices are, meanwhile, normalizing more slowly than elsewhere in Europe. While the country’s inflation still remained on a “high level” at 6.2 percent in July, inflation in the eurozone fell to 5.3 percent, according to official figures.

“The barely weakened inflation turns private consumption into a brake on the economy,” the IW said. After annual inflation of 6.9 percent last year, the institute expects inflation in Germany to be only slightly lower at around 6.5 percent in 2023.

In order to push inflation back below its 2 percent target, the European Central Bank (ECB) kept raising its key interest rates by 25 basis points (bps) on July 27 to a level seen at the end of the 2008 financial crisis.

Subdued by high inflation, consumer sentiment in Germany remains at a low level. The forward-looking consumer climate for September by the market research institute GfK fell to minus 25.5 points. “The chances that consumer sentiment can sustainably recover before the end of this year are dwindling,” GfK expert Rolf Buerkl said on Tuesday. ■