The Recession in Germany will be Deeper than Expected

Germany's recession this year will be worse than previously feared, leading economic institutes have warned, as high inflation and industrial slowdown hit Europe's leading economy hard.

The economy will shrink by 0.6 percent in 2023, the institutes said in their latest joint forecast. In recent months, they have all noted that a decline is expected, although the current forecast is worse than previously announced, AFP reported.

"The most important reason for this revision is that industry and private consumption are recovering more slowly than we expected," said Oliver Holtemöller of the Halle Institute for Economic Research, one of the five groups behind the forecast.

German policymakers are facing challenges on several fronts, from still-high inflation that began to rise after Russia's invasion of Ukraine to weak manufacturing and the impact of record interest rates in the Eurozone.

Problems in the global economy, and in particular the slow recovery from the pandemic in China, Germany's biggest trading partner, are also weighing on the powerful exporter.

There were positive signs at the start of the year that Germany may have weathered the energy crisis better than expected, but today's forecasts are just the latest gloomy signal in recent months.

The economy slipped into recession at the start of the year and has since struggled to recover, with growth stagnating in the second quarter.

The last joint economic forecast, published in April, projected growth of 0.3 percent in 2023. Since then, however, some of the participating institutes have forecast a separate contraction in the economy that year, although their forecasts were less gloomy than the last joint forecast.

The IMF predicts that Germany will be the only major advanced economy to contract this year. Earlier this month, the European Commission said it expected the German economy to contract by 0.4% this year, compared with a previous forecast of 0.2% growth.

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