Germany’s economy is on course for its first full year of contraction since the pandemic, new forecasts showed, though rebounding consumption should spur a recovery in 2024.
Output will drop by 0.6% in 2023, according to projections by five institutes that advise the government. That’s a gloomier outlook than those of both the International Monetary Fund and the European Commission. Next year will bring growth of 1.3%, helped by rising wages, lower energy prices and easing supply bottlenecks.
Europe’s largest economy has failed to regain momentum after Russia’s invasion of Ukraine sent energy prices soaring, triggering a recession. Its woes have shone a light on deep-seated structural issues that threaten to weigh over the coming years — including a dwindling workforce, an over-reliance on China and the energy transition.
German output will shrink by 0.4% this quarter, but rise by 0.2% in the final three months of 2023 — escaping another recession, according to the institutes. While the weakness is starting to reach the labor market, they only a expect a moderate increase in unemployment this year, followed by a slight improvement in 2024.
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