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Brussels predicts a recession in Germany in 2023

The European Commission has reduced its economic growth forecasts for the euro zone in 2023 and 2024 by 0.

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Brussels predicts a recession in Germany in 2023

The European Commission has reduced its economic growth forecasts for the euro zone in 2023 and 2024 by 0.3 points, to 0.8% and 1.3% respectively, due in particular to the difficulties of Germany, weighed down by its industry. . Brussels is now counting on a decline in gross domestic product (GDP) of 0.4% this year in Europe's largest economy, before a rebound of 1.1% next year, compared to 0.2% and 1.4% expected so far.

Germany suffers from the weakness of its exports and its vast industrial sector, its traditional strengths. Industrial confidence indicators have been falling since the beginning of the year, particularly in energy-intensive sectors, "hard hit by the energy price shock" linked to the war in Ukraine, underlined the European executive in a report published on Monday.

Overall, however, growth continues in the eurozone and the EU, but at a slower pace than expected. For all 27 member countries, Brussels is now counting on 0.8% growth in 2023 and 1.4% in 2024, respectively 0.2 points and 0.3 points less compared to the latest forecasts published on 15 may. However, France should do better than expected this year, thanks to a strong rebound in the spring. The growth of Europe's second largest economy has been revised upwards to 1% this year (0.3 points). Same thing for Spain, whose growth is now expected at 2.2% (0.3 points). Inflation continues to slow. Brussels now expects an average increase in consumer prices of 5.6% in 2023 (-0.2 points, compared to the latest forecasts in May) and 2.9% in 2024 (0.1 points), according to a press release published Monday.

Also read “France, Germany better”: the astonishing compliment from the German press

“The multiple headwinds our economies are facing this year have led to a weaker growth dynamic than we had anticipated in the spring,” acknowledged Economy Commissioner Paolo Gentiloni, highlighting the impact of the war in Ukraine . “Russia's brutal war against Ukraine continues to cause not only human suffering, but also economic disruption,” he said. The European Commission notes that “economic activity in the EU was weak during the first half of the year”, particularly in the consumer sector, a sign that high prices “weigh more heavily than expected” in the spring forecasts , despite the exceptional strength of the labor market, which recorded record unemployment rates.

The Commission also emphasizes the impact of interest rate increases decided by the ECB. The strong monetary tightening implemented to combat inflation results in a “clear slowdown in the granting of bank loans”, mechanically reducing the investment capacities of businesses and households. The latest indicators “suggest a slowdown in economic activity during the summer and in the months to come, with persistent weakness in industry and a loss of speed in services, despite a strong tourist season in many many regions of Europe,” summarizes the Brussels executive.

Due to China's weak performance, the European economy cannot count on strong support from exports either. The continued slowdown in inflation and the resilience of the labor market should, however, allow a rebound in 2024.

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