MNI BRIEF: German Economy Robust Despite External Shocks - IWH

Germany’s economy is unlikely to slip into deep recession despite rising interest rates and the European energy crisis, the Halle Institute for Economic Research (IWH) reported on Tuesday, with growth expected to slip below Bundesbank estimates in the very term before coming in slightly above the central bank’s figure for 2024. However the outlook for inflation is worse across the forecast horizon, IWH said.

German GDP is estimated to have risen by 1.8% in 2022, largely attributed to a post-pandemic bounce-back in the first three quarters of the year. But growth is expected to fall slightly over the winter as a result of high energy prices, averaging 0.0% for 2023 as a whole before returning to 1.9% in 2024. Inflation will fall from 7.8% in 2022 to 6.5% in 2023 and 3.5% in 2024.

The Bundesbank sees German GDP increasing by 1.3% next year, 1.7% in 2024 and 1.4% in 2025. Inflation is expected to be around 7.2% in 2023, 4.1% in 2024 and 2.8% in 2025.

“The German economy has so far proved quite robust, and production expanded into the fall as it recovered from the pandemic,” head of the Macroeconomics Department and vice president at the IWH Oliver Holtemoller said. “While the gas and electricity price brakes are likely to cushion the fall in output in winter, it also increases the risk that the inflation rate will be further fueled by the high debt-financed government trans­fers.”