Brussels/Berlin (Reuters) – According to the EU Commission’s forecast, high inflation and a weak global economy are driving Germany into recession and depressing growth in the euro zone.
A slight upswing can only be expected in 2024, as price pressure eases and consumers’ spending mood revives, as can be seen from the summer forecast presented on Monday. Brussels expects the countries of the monetary union to only see an increase in gross domestic product (GDP) of 0.8 percent in 2023, after 1.1 percent in the spring forecast. EU Economic Commissioner Paolo Gentiloni speaks of “multiple headwinds” with regard to the consequences of the war in Ukraine, rising interest rates and high inflation. This particularly affects Germany: GDP in this country is likely to shrink by 0.4 percent.
This means that Brussels, like many German research institutes, no longer believes the local economy will grow, after the EU Commission had estimated a small increase of 0.2 percent in the spring. Gentiloni said that even if things are now going slightly into negative territory, Brussels is not adopting the image of the German economy as the sick man of Europe painted in some media: “We know that it is a strong economy that has the tools and has the opportunity to relax.” Domestic consumption and purchasing power could improve in the coming months. This would pave the way for a return to growth path. The German economy has not grown for three quarters in a row. According to many economists, a trend reversal is not expected for the time being.
The export-oriented industrial location between the Rhine and Oder suffers particularly from high energy costs and the poor global economic environment. According to the EU Commission, Spain, which is benefiting from a tourist boom, is likely to cope better with these adversities and achieve GDP growth of 2.2 percent this year. France is expected to achieve an increase of 1.0 percent and Italy, which has long been considered an economic laggard, is expected to achieve an increase of 0.9 percent.
“NEAR THE INTEREST RATE PEAK”
EU Commission Vice President Valdis Dombrovskis expects a mild recovery to emerge next year after a period of weakness, “supported by a strong labor market, record low unemployment and easing price pressures.”
In its forecasts, the EU Commission no longer estimates price pressure to be quite as high as was assumed in the spring. In 2023, she expects an inflation rate (HICP) calculated for the European comparison of 6.4 percent for Germany; in May she had predicted 6.8 percent. It now forecasts inflation of 5.6 percent for the euro zone, after 5.8 percent in the spring forecast.
Next year, inflation rates are likely to be 2.8 percent in Germany and 2.9 percent in the euro zone, above the European Central Bank’s target of 2.0 percent, which is considered ideal for the economy. In the spring, the Commission set the two inflation values a bit lower.
The ECB will decide on the key interest rate again on Thursday: After nine increases in a row, the monetary authorities led by ECB boss Christine Lagarde are discussing whether the series will continue or whether there will be a break. The current key interest rate is now 3.75 percent. The stock markets are largely expecting that the ECB will keep its feet still. But the vote in the ECB Council is considered a close race.
Gentiloni emphasized that the ECB decides autonomously on key interest rates. His job is to explain forecasts and not to make recommendations: “But based on the short-term interest rate projections, we estimate that we are in any case close to the interest rate peak in the EU.”
(Report by Reinhard Becker, collaboration with Nette Nöstlinger; Edited by Hans Busemann; If you have any questions, please contact our editorial team at [email protected] (for politics and the economy) or [email protected] (for companies and markets).)