(Bloomberg) -- Germany’s economy is on course for its first full year of contraction since the pandemic, new forecasts showed, though rebounding consumption should spur a recovery in 2024.
Output will drop by 0.6% in 2023, according to projections by five institutes that advise the government. That’s a gloomier outlook than those of both the International Monetary Fund and the European Commission. Next year will bring growth of 1.3%, helped by rising wages, lower energy prices and easing supply bottlenecks.
The institutes lowered their expectations for this year from an April forecast for 0.3% expansion. The downward revision was mainly due to industry and private consumption “recovering more slowly than we expected,” Oliver Holtemoeller, vice president at the Halle Institute for Economic Research, said Thursday in a statement.
Europe’s largest economy has failed to regain momentum after Russia’s invasion of Ukraine sent energy prices soaring, triggering a recession. Its woes have shone a light on deep-seated structural issues that threaten to weigh over the coming years — including a dwindling workforce, an over-reliance on China and the energy transition.
The struggles have rippled though politics, too, contributing to an erosion in the popularity of Chancellor Olaf Scholz’s ruling coalition that’s helped the far-right AfD to surge in opinions polls.
German output will shrink by 0.4% this quarter, but rise by 0.2% in the final three months of 2023 — escaping another recession, according to the institutes. While the weakness is starting to reach the labor market, they only a expect a moderate increase in unemployment this year, followed by a slight improvement in 2024.
One headwind that looks poised to ease is inflation. Analysts reckon data due later Thursday will show a steep slowdown and the institutes see this year’s 6.1% reading plunging to 2.6% in 2024 and 1.9% in 2025.
Bundesbank President Joachim Nagel is among officials cautioning against overly pessimistic assessments of Germany’s prospects, saying the country has the capacity to adapt to the changing conditions and will overcome its current malaise.
--With assistance from Iain Rogers.
©2023 Bloomberg L.P.
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