Double-digit inflation rates are weighing on consumers. The German economy is heading into a recession. Leading economic researchers will not see light at the end of the tunnel until 2024.
Record inflation and economic slump: The energy crisis is hitting Germany hard. According to an initial estimate by the Federal Statistical Office, the annual rate of inflation jumped to 10.0 percent in September, the highest level for around 70 years. The result: consumers can afford less and less for their money. This is slowing down consumption as an important pillar of the economy. According to estimates by leading economic research institutes, Europe’s largest economy is heading into a recession – with severe losses in prosperity over a long period of time. The federal government wants to relieve consumers and companies with a new aid package.
“The main burden is currently on private households, who have to accept a massive loss of purchasing power. And that will intensify over the course of the next year,” said Torsten Schmidt from the Leibniz Institute for Economic Research on Thursday in Berlin at the presentation of the autumn report by leading economic researchers. Most companies, on the other hand, could still absorb the energy price shocks quite well.
Inflation reduces purchasing power
Inflation rates at the current level have never existed in reunified Germany. In the old federal states, rates of 10 percent and more were measured in the early 1950s, but the calculation method has changed over time. At 10 percent, the rate is in double digits for the first time since the Korean War in the early 1950s, explained Commerzbank chief economist Jörg Krämer. Economists expect inflation rates to rise further in the coming months.
Higher inflation rates reduce purchasing power, so consumers can afford less for one euro. According to a survey by the German Retail Association (HDE), 60 percent of consumers are already restricting themselves when shopping. For the coming months, 76 percent of those surveyed are preparing to shop more sparingly.
Energy and food have been the biggest price drivers for months. The Russian attack on Ukraine and supply bottlenecks have exacerbated the already tense situation. In September, according to preliminary data, energy prices increased by 43.9 percent and food prices by 18.7 percent over the course of a year.
According to the estimates of the economic research institutes, the loss of prosperity of the citizens due to the higher energy prices will also last in the longer term. “This is not a temporary phenomenon, it will keep us busy for a long time,” said economist Schmidt. Industry, on the other hand, is still relatively robust because order books are well filled. However, the Federation of German Industries (BDI) complained that high and fluctuating energy prices were making industrial production increasingly unpredictable.
In their autumn report, economic researchers predict a recession for Germany. For 2022 as a whole, the experts are still expecting economic growth of 1.4 percent due to the better first half of the year, and then expect a decline in economic output of 0.4 percent in the coming year. They do not expect the energy markets to relax until 2024, and thus also an economic recovery.
Gas prices are the decisive factor that will drive the German economy into recession. And the top has not yet been reached, it was said. The highest energy prices for consumers are expected in the middle of next year. The institutes are not currently expecting a gas shortage. However, the supply situation remains extremely tense, which is driving up prices.
According to the forecast, inflation will therefore continue to rise. The institutes expect inflation to average 8.4 percent for the current year and 8.8 percent for 2023. For 2024, they assume falling energy and raw material prices and thus inflation of 2.2 percent.
The federal government wants to support consumers and companies with a new aid package worth up to 200 billion euros. The gas levy, which was controversial until recently, is off the table – there should be a gas price brake for this. “The prices have to go down,” said Chancellor Olaf Scholz (SPD) on Thursday. The federal government will do everything for this. Scholz described the planned state support for energy supply and the planned price brakes for electricity and gas as “double boom”.(dpa)