German GDP expected to contract by 0.6% this year – economic institutes

BERLIN (Reuters) – Five economic institutes are predicting gross domestic product (GDP) in Germany will contract by 0.6% in 2023, as rising interest rates take their toll on the economy and high inflation depresses consumption.

Growth of 0.3% had been expected in the institutes’ spring forecasts.

The forecast confirms the numbers Reuters previously reported exclusively earlier this week.

“The most important reason for this revision is that industry and private consumption are recovering more slowly than we expected in spring,” said Oliver Holtemoeller, vice president and head of the macroeconomics department at the Halle Institute for Economic Research (IWH)

GDP is expected to shrink by 0.4% in the third quarter, following stagnation in the second quarter. In the last quarter of the year, growth is forecast to pick up again, with a modest 0.2% expansion.

For 2024, the institutes – four German and one Austrian – forecast GDP growth of 1.3%, down from 1.5% previously. For 2025, a 1.5% GDP expansion is forecast.

In the following years, a decreasing potential growth rate due to the shrinking labour force will become more and more apparent, the economic institutes warn.

Inflation is expected to be 6.1% this year and fall to 2.6% next year, according to the fall forecasts. The inflation rate was at 6.9% last year.

In 2025, inflation in Germany is expected to fall to 1.9%.

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