The German economy can no longer escape a recession.

The Kiel Institute for the World Economy now also assumes this in its economic forecast published on Thursday.

According to this, the gross domestic product (GDP) will shrink by 0.7 percent next year.

"The German economy is in a downward spiral," write the economists.

It will “slide into a recession, in a phase in which it was just recovering from the setbacks caused by the pandemic”.

This year, however, growth will remain above zero with a total increase of 1.4 percent.

Svea Junge

Editor in Business.

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In the summer, the people of Kiel still assumed that the economic upswing would prevail despite the burdens caused by the war in the Ukraine and that the gross domestic product would rise by 2.1 percent this year and by 3.3 percent next year.

The Kiel-based company explained that the recent jumps in electricity and gas prices would noticeably reduce the purchasing power of private households and lead to a decline in private consumer spending.

They see the cooling global economy as an additional burden: "In addition, the global economic outlook, which has been clouded over since the summer, will noticeably dampen not only exports but also investment activity," they warn.

Falling energy prices not until 2024

As growth slows, inflation is likely to rise further.

"If electricity and gas prices remain high for an extended period - as is currently emerging - inflation is expected to rise from a record 8 percent this year to 8.7 percent in 2023," the statement said Forecast Market prices for electricity and gas only reached consumer prices with some delay Economists do not expect energy prices and thus inflation to fall until 2024.

Inflation is likely to have a severe impact on consumption: "In addition to burdens for energy-intensive industries, the massive rise in energy prices is leading in particular to a considerable loss of purchasing power in private households," the IfW warns never before in reunified Germany and as a result private consumption will shrink well into the coming year."

The Kiel-based company also sees the euro area heading towards a recession.

They predict that overall economic production will probably shrink slightly for a few quarters.

For 2022, economists are expecting an overall GDP increase of 3 percent in the euro area, followed by stagnation in 2023. According to the forecast, inflation will rise by 8.1 percent on average for the year and thus more strongly than at any time since the monetary union came into existence .

At 7.2 percent, the rate of inflation in 2023 will still be well above the 2 percent target set by the ECB.