IfW: The economy will grow again in 2023

Gross domestic product (GDP) is expected to increase by 0.3 percent in the coming year. This emerges from the outlook published on Thursday by the Kiel Institute for the World Economy (IfW). In September it had still expected a decline of 0.7 percent.

The Munich Ifo Institute had previously raised its forecast for 2023, but is still assuming a mini minus of 0.1 percent. The Federal Government, the International Monetary Fund (IMF) and the Organization of Industrialized Nations (OECD) are also expecting a decline in economic output. The Association of German Chambers of Industry and Commerce (DIHK) is even expecting a drop of three percent.

Inflation will drop significantly

“The prospects for the economy have brightened somewhat – with a high level of uncertainty,” explained the Kiel researchers. The decisive factor is that private consumption will suffer far less from the energy crisis than previously feared. “Wholesale prices for gas and electricity have fallen significantly in recent months – even if they are still at a high level,” it said. “In addition, the burdens on private households and companies due to the high energy costs are to be cushioned by so-called price brakes.”

Therefore, the inflation rate in the coming year at 5.4 percent will be significantly lower than previously predicted at 8.7 percent. For the year that is coming to an end, it should be 8.0 percent, and then 2.2 percent in 2024.

According to the forecasts, the labor market is proving to be robust, also because companies are still desperately looking for skilled workers. The government deficit is likely to increase further in the coming year due to the aid packages.

pessimism among chemists

Confidence does not prevail in all sectors of the economy. The chemical industry, for example, is looking to the coming year with great concern. “The situation is dramatic,” warned the President of the Chemical Industry Association (VCI), Markus Steilemann. “Our medium-sized companies in particular are fighting for their future.” The high energy costs and price increases for raw materials and preliminary products continued to have a severe impact on Germany’s third-largest branch of industry after the automotive industry and mechanical engineering. According to a current member survey by the association, every fourth company is already making losses.

The chemical industry is not expecting any improvement in 2023. According to the VCI, production will drop sharply. Sales in the industry with a good 475,000 employees in Germany are also expected to shrink. In domestic business, the association expects a significant decline due to the sluggish industry.

The chemical and pharmaceutical industry is suffering from the high gas and electricity prices as a result of the Ukraine war. Production will fall this year by 6 percent compared to the previous year – somewhat more than was last promised. The production of the particularly energy-intensive chemicals alone is shrinking by around 10 percent.

recovery “in creep”

Overall, however, the IfW is not giving the all-clear for the economy. “The German economy is facing a weak winter half-year,” they wrote, with a view to the expected recession in the current and coming quarters. Germany is moving “in crawling gear through the energy crisis”.

The high energy prices weighed on the purchasing power of households. Therefore, private consumption will only pick up again in the second half of 2023. However, companies are likely to invest more and exports will increase slightly despite the difficult global environment. The IfW predicts economic growth of 1.3 percent for 2024, and 1.9 percent by the end of the year.

dk/hb (dpa, rtr)