The German economy is “holding its own” and should avoid recession
Frankfurt (Germany) (AFP) – Germany is expected to narrowly escape recession this year as Europe’s biggest economy weathers the fallout from the war in Ukraine better than expected, the government said on Wednesday.
The new forecasts of the Ministry of Economy confirmed the positive signals that have been increasing since the end of the year, dispelling the dream of winter twilight for the country.
Germany is expected to register 0.2% growth in 2023, according to the government, while Berlin still expected a 0.4% fall in GDP this autumn amid rising energy prices and reduced purchasing power for the industrial sector.
After 1.9% growth in 2022, Germany’s “holding is firm,” the Ministry of Economy notes, emphasizing the “sustainability” of activity in the face of the energy crisis.
In particular, he appreciates the energy savings of individuals and businesses after Russia gradually cut off gas supplies last year.
“Thanks to these efforts, the economic outlook for 2023 is better than expected,” the ministry added.
Elga Bartsh, head of the economic policy department of the ministry, told reporters: “We expect the economic situation to become clearer in the spring.”
Before that, Germany could experience a two-quarter drop in economic growth, with a technical recession “shorter and milder than our autumn forecasts, if it happens,” alongside Economy Minister Robert Habeck.
Chancellor Olaf Scholz even confirmed that his government is in a position to “call the end of the economic crisis” in front of the Bundestag on Wednesday.
“No one expected that we will easily survive a situation where the supply of Russian gas to Germany will be completely stopped,” he admitted last week.
The energy crisis caused by the Ukraine war has shaken Germany’s economic model, which relies on massive imports of cheap gas from Russia in particular.
Inflation rose as manufacturing costs in industry, the engine of Germany’s growth, raised fears of a major economic crisis.
Germany’s economy has so far been spared the worst-case scenario thanks to falling energy prices in recent months, benefiting from a mild winter in Europe and Berlin’s efforts to boost its natural gas supply.
Berlin has also budgeted more than 200 billion euros to support purchasing power and business to finance energy price protection.
Private consumption was the pillar of activity in 2022 thanks to the catch-up effect at the end of the Covid-19 pandemic.
But it is now being “wracked” by inflation, Ms Bartsch warned.
According to the information provided by the Ministry, the industrial sector and especially exports, which struggled last year, will again be the peak of the economy in 2023.
Lower energy prices helped inflation drop from an annual peak of 10.4% in October.
The Economy Ministry expects this trend to continue: it expects inflation to fall from an average of 7.9% in 2022 to 6% this year, a record high in post-war Germany. .
The crisis is not over yet. ING Bank economist Carsten Brzeski analyzes: “It’s one thing not to fall off the cliff, it’s another thing to organize a strong rebound.”
On the one hand, Germany’s export-oriented economic activity should benefit from stagnation in Chinese supply chains, blocked during months of confinement, and low inflation could revive German consumer demand. .
But industrial production remains 5% below pre-pandemic levels, Brzeski notes.
Uncertainty still affects energy stocks for the winter of 2023-2024, and industrial orders have fallen for nearly a year.
The government must continue to secure energy supplies, strengthen Germany’s competitiveness and “strategic sovereignty”, while acknowledging that “uncertainties” remain severe, the report said.
© 2023 AFP