By Andreas Kissler
BERLIN (Dow Jones) — The Ifo Institute for Economic Research has drastically cut its forecast for German economic growth. “We’re going into a winter recession,” said Timo Wollmershäuser, head of Ifo economic forecasts. In the coming year, the institute now expects economic output to shrink by 0.3 percent, for this year only 1.6 percent growth.
Inflation is likely to average 8.1 percent this year and even 9.3 percent next year. “The cuts in gas supplies from Russia in the summer and the resulting drastic price increases are ruining the economic recovery after Corona,” said Wollmershäuser. “Not until 2024 do we expect normalization with 1.8 percent growth and 2.5 percent inflation.”
Compared to June, the institute has thus significantly lowered its growth forecast for 2023 by 4.0 percentage points and increased the inflation forecast by a substantial 6.0 percentage points. “These are unusually large changes in such a short period of time,” admitted Wollmershäuser. The energy suppliers noticeably adjusted their electricity and gas prices to the high procurement costs, especially at the beginning of 2023. That will even push up the inflation rate to around 11 percent in the first quarter. As a result, real household incomes fell sharply and purchasing power fell noticeably.
The government’s third relief package should counteract this decline somewhat, but by no means offset it. “The loss of purchasing power, measured by the decline in real per capita wages by around 3 percent this year and next, is higher than at any time since today’s national accounts began in 1970,” added Wollmershäuser.
In the further course of the coming year, the price increase will gradually weaken. According to the Ifo Institute, it assumes that there will be enough gas available in winter. For this reason, energy prices should not continue to rise and should fall again by spring 2023 at the latest. The institute did not expect any serious effects on the labor market. The increase in employment will only slow down temporarily. An increase in the number of unemployed by a good 50,000 in the coming year is mainly due to the sharp rise in unemployed Ukrainians in the summer of 2022, who are only gradually being integrated into the labor market.
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(END) Dow Jones Newswires
September 12, 2022 04:30 ET (08:30 GMT)