German economy will shrink by 0.5 percent in 2023

The industrialized nations organization OECD predicts a stronger recession in Germany than the economists. According to the economic outlook published on Tuesday, gross domestic product will shrink by 0.5 percent in the coming year. In their annual report for the federal government, the five economic experts assume a minus of 0.2 percent. In the year that is coming to an end, growth of 1.7 percent should be enough, which should be almost reached again in 2024 at 1.5 percent, the OECD explained.

"The strong volatility of energy prices and the difficult energy supply are unsettling companies and households," said Nicola Brandt, who heads the OECD Berlin Centre. "High inflation is causing real incomes to fall, which is affecting consumption." Due to the pronounced dependence on gas supplies from Russia and disrupted supply chains, Germany, with its strong focus on industrial exports, is exposed to particular risks.

However, the Organization for Economic Co-operation and Development (OECD) also sees signs of hope. The high investment requirements due to the relocation of supply chains and the expansion of renewable energies had a stabilizing effect. Exports are also likely to recover on the back of a sizeable order backlog and easing supply chain bottlenecks. No rapid easing of inflation is expected. "Inflation will remain high due to the pass-through of energy and producer prices to consumers, the depreciation of the euro and rising wage pressures," it said. It will only gradually weaken.

At the same time, the OECD warns of enormous dangers for the economy. "A significant downside risk comes from possible gas rationing over the next two winters if planned fiscal support measures do not adequately preserve price incentives for gas savings," it said. "New waves of the pandemic could further dampen private consumption or exacerbate bottlenecks in the supply chain."

Rising interest rates, in turn, could lead to sharp corrections in the real estate markets and affect the financial markets. "On the other hand, a faster end to the war could restore investor and consumer confidence and lower energy prices."

The OECD also predicts difficult times for the global economy. "Growth has lost momentum, while high inflation has stubbornly persisted." The Russian war against Ukraine drove up energy prices in particular. Global gross domestic product will therefore grow by 3.1 percent this year, only about half as much as last year. In 2023, only 2.2 percent should be enough.

An increase of 2.7 percent is predicted for 2024. "The global outlook is also becoming increasingly unbalanced," the OECD said. In the coming year, almost three-quarters of global growth is likely to come from the large Asian emerging markets, while the upswing in the USA and Europe will lose momentum.

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