German GDP forecast to contract by 0.6% this year

Germany’s economy is on course to contract this year, a group of leading economists warned on Thursday.

Publishing their Joint Economic Forecast, Germany’s five economic institutes said GDP was likely to contract by 0.6% in 2023, after growth was dampened by higher interest rates and inflation.

The institutes had initially forecast growth of 0.3% in the spring.

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

The institutes expect GDP to contract in the third before growing by 0.2% in the fourth. The economy - the European Union’s largest - stagnated in the second quarter and shrank in the first.

The forecast noted that the sharp rise in energy prices in 2022 had put an "abrupt end" to the post-pandemic recovery and seen consumer price inflation rise to more than 8%.

Looking forward ahead, growth of 1.3% was forecast for 2024, down 0.2 percentage points on their previous spring forecast. "In the following years, a decreasing potential growth rate due to the shrinking labour force will become more and more apparent," the institutes added.

The Joint Economic Forecast is prepared by IWH, DIW Berlin, the ifo Institute in Munich, IfW Kiel and RWI in Essen.