German economy may contract slightly in 2023 – IMF

BERLIN (Reuters) – Germany’s economic output may shrink slightly this year due to the energy price shock and tightening financial conditions, the International Monetary Fund (IMF) said on Monday.

Gross domestic product is expected to regain momentum gradually in 2024 and 2025, as the lagged effects of monetary tightening gradually dissipate and the economy adjusts to the energy shock, the IMF said in its country report for Germany.

Over the medium term, average GDP growth is expected to fall back below 1% due to accelerating headwinds from population aging and a lack of significant increases in productivity.

Inflation is expected to keep falling amid softening energy prices and tightening fiscal policy, but core inflation may decline more slowly than headline inflation due to rising nominal wage pressures and the time it takes for lower global commodity prices to seep through to core inflation, the IMF said.

Uncertainty is unusually high, with substantial risks in both directions, which on balance are tilted downward for growth, the IMF warned in its report.

“Uncertainty around the persistency of core inflation is especially high, as a rapid rise in core inflation to its current levels has not been observed in Germany or most other advanced economies for decades,” the IMF said.

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