The German economy is “holding its own” and should avoid recession
Frankfurt (awp/afp) – Germany should narrowly escape recession this year, the government said on Wednesday as Europe’s leading economy resisted the fallout from the war in Ukraine better than expected.
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.
Many economic institutes and experts also expected activity to decline in 2023 before revising their forecasts upwards in recent weeks.
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 praises the energy-saving efforts 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.
Nice surprise
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.
Last week, he said he was now “confident” the country would not go into recession.
“No one really expected that we would easily survive a situation where the supply of Russian gas to Germany would be completely stopped,” the chancellor admitted.
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.
Germany has also budgeted more than 200 billion euros to support purchasing power and business, and finance energy price protection.
Thus, while the industrial sector and exports struggled, private consumption became the main pillar of activity at the end of the year.
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. .
Uncertainties
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, Mr Brzeski points out, and uncertainty still hangs over energy supplies for the winter of 2023-2024.
Industrial orders have also been on a downward trend for nearly a year, and consumer confidence, despite some recent improvements, is still near historic lows.
Brzeski also warns that households and businesses have yet to feel the full impact of rising borrowing costs as the European Central Bank raises interest rates in an effort to curb inflation.
The government must continue to secure energy supplies, strengthen Germany’s competitiveness and “strategic sovereignty”, while acknowledging that “uncertainties” remain severe, the report said.
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