The Ifo Institute expects rising inflation and a recession in Germany. According to the Munich economists, the inflation rate should increase from 8.1 percent in the current year to 9.3 percent in the coming year. The economy, on the other hand, will only grow by 1.6 percent this year and will shrink by 0.3 percent in the coming year. “We’re going into a winter recession,” said the head of Ifo economic research, Timo Wollmershäuser, on Monday in Berlin when the forecast was clearly cut.
The cut in gas supplies from Russia and the subsequent drastic price increases “have spoiled the economic recovery after Corona,” said the economist. “Not until 2024 do we expect normalization with 1.8 percent growth and 2.5 percent inflation.”
The German economy is stagnating in the current third quarter and is expected to shrink in the winter months. “The decisive factor for this is likely to be a decline in private consumer spending,” write the economic researchers. The energy suppliers noticeably adjusted their electricity and gas prices to the high procurement costs at the beginning of next year. That will even push up the inflation rate to around 11 percent in the first quarter.
“The high rates of inflation are causing the real income of private households and their savings to melt away and reduce their purchasing power,” according to the economic researchers. The relief package is unlikely to make up for this by far. “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,” said Wollmershäuser.
The Ifo Institute expects that enough gas will be available in winter. From spring onwards, energy prices are expected to fall again, and as the year progresses the rise in prices will gradually slow down. Due to new collective agreements with rising wages, the core inflation rate is likely to remain high – but real household incomes are also likely to rise again from mid-2023, “which will stimulate consumer activity”.
The Ifo Institute does not expect any serious effects on the labor market. The increase in employment will only slow down temporarily. The number of unemployed is likely to rise by 50,000 in the coming year. But that is mainly due to Ukrainians, who are only gradually being integrated into the labor market.
Industry should gradually work off its high order backlog in the coming quarters. The construction industry, on the other hand, is being slowed down by rising financing costs. By the end of next year, the Ifo Institute expects the key interest rate to rise to 4 percent. The national budget will also remain in deficit in 2023 and 2024: “The relief packages, the rising interest payments and the economic slowdown are putting off the previously expected consolidation of public finances.”
With its forecast for inflation in the coming year, the Ifo Institute is between the most recent forecasts by the IWH in Halle and the IfW in Kiel. When assessing economic development, the people of Munich are more optimistic. (dpa)