Germany’s Economy Faces Headwinds: Weak Growth and Stagnant Productivity Expected in 2023

Institute Decreases Forecasts for German Economy Due to Struggle

The Kiel Institute for the World Economy (IfW) has recently revised its economic forecast for Germany, citing “headwinds” from both domestic and international factors. According to Stefan Kooths of the IFW, the German economy is facing challenges and expects growth of only 0.1% this year, a significant decrease from previous expectations of 1.3%.

In 2023, Germany’s economic output fell by 0.3%, and the IfW experts believe that productivity in the country has been stagnant. They attribute this to slower private consumption, declining exports despite global economic growth, and a struggling construction industry. While there may be a slight recovery in the spring, overall momentum is expected to remain weak.

Political uncertainty is also a factor affecting the economy, as the government struggles to finalize a growth package. The German Chamber of Industry and Commerce has echoed these concerns, pointing to high energy costs, a shortage of skilled labor, and geopolitical uncertainties impacting export business.

On a positive note, experts predict that the phase of very high inflation rates experienced since the middle of last year may be over. Consumer prices are expected to rise by 2.3% this year and by 1.8% next year, providing some relief for consumers. Despite these challenges, the institute has left its forecast for next year virtually unchanged at 1.4%.

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