“We are sliding into a winter recession”.

Germany's Gross Domestic Product (GDP) is set to shrink by 0.3% in 2023 due to massive inflation and the lack of Russian gas, amid war in Ukraine, according to a study by the IFO institute published on Monday.

This institute, one of the most influential in Germany, lowered its previous June forecast by 4 points.

The IFO expects a technical recession in the first quarter of 2023, with a fall of 0.4% in GDP, after a decline of 0.2% in the fourth quarter of 2022. summer” and “the resulting massive price increases”, explains Timo Wollmershäuser, director of economic studies.

Average inflation is thus expected to rise to 9.3% next year, after 8.1% in 2022, he added.

Energy tension

Gazprom has drastically reduced its gas deliveries in recent months to Germany, through Nord Stream, before stopping them at the beginning of September, against the backdrop of a standoff between Moscow and the European Union over the war in Ukraine.

Germany, which got 55% of its supplies from Russia before the war, had to get supplies elsewhere, at much higher prices.

These tensions have therefore caused the price of gas and electricity to explode in Europe, causing inflation to soar.

And the movement should continue: “Energy suppliers will significantly adjust their electricity and gas prices (…) in particular at the beginning of 2023”, estimates the IFO.

Towards 11% inflation in 2023

German central bank president Joachim Nagel also deemed it "possible" for Germany to slip into recession as early as the 3rd and 4th quarters of this year, and also remain there until the beginning of next year, in an interview. given on Sunday on German radio Deutschlandfunk.

The inflation rate will rise to around 11% during the first quarter of 2023, severely affecting household purchasing power, the IFO still predicts.

The German government adopted in early September a third plan of measures to help the poorest, but this will not be able to compensate for the expected loss of purchasing power, according to the IFO.

“The decline in real wages, of around 3% this year and next year, will be the highest since the introduction of national accounts in 1970”, anticipates Timo Wollmershäuser.

However, the situation could “normalize” again in 2024 with “growth of 1.8% and inflation of 2.5%”, he concludes.

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  • Economy

  • Germany

  • Energy

  • War in Ukraine

  • Recession

  • Inflation