European Commission cuts growth forecast for Germany in 2023

BERLIN (Reuters) – The German economy is expected to contract in 2023, the European Commision said on Monday, cutting its forecasts for the euro zone’s biggest economy.

Germany’s gross domestic product is now forecast to shrink by 0.4% in 2023, compared to the 0.2% growth projected previously.

Weak consumption and a decline in construction investment are forecast to negatively impact growth, despite an uptick in equipment investment, the European Commission said.

While weak external demand weighs on exports, net exports are expected to contribute positively to growth in 2023 due to falling imports, the commission added.

In 2024, GDP is forecast to rebound by 1.1% driven by a recovery in consumption. This is less than the 1.4% projected in the spring, due to a slowdown in the construction sector and less dynamic growth in exports.

Germany’s headline inflation in 2023 is expected to come down to 6.4% from 8.7% in the previous year.

In the first half of 2023, energy and service price inflation fell more than expected, the commission said. Nonetheless, service inflation is set to remain elevated as wages rise.

This, in combination with high food prices and core inflation, is expected to keep headline inflation high in 2023, the commission said in its forecasts.

Headline inflation is forecast to fall to 2.8% in 2024, due to a gradual slowdown in goods prices and a slow down in energy prices.

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