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After the German economy slipped into recession in the first quarter, many economic researchers expect the German economy to shrink overall in 2023. Deutsche Bank's economists expect gross domestic product to decline by 0.3 percent, after previously assuming stagnation – i.e. unchanged economic strength. Berenberg Bank's forecast has even gone down from 0.0 to minus 0.4 percent. Analysts at the development bank KfW and Commerzbank also expect a slight contraction in 2023. This means that banking economists are much more pessimistic than the German government, which raised its forecast to plus 0.4 percent in the spring.

Europe's largest economy is already technically in recession after gross domestic product shrank by 0.3 percent from January to March, the second quarter. The main reason for this is the reluctance of citizens to consume, who once again suffered a loss of purchasing power due to persistently high inflation. "We still expect some pent-up demand in private consumption as headline inflation declines and agreed wage increases take hold," said Stefan Schneider, Deutsche Bank's chief economist for Germany. "But the slump in the March data and the overall disappointing sentiment surveys in April and May point to modest growth in the second quarter at best." In March, for example, industrial orders slumped by 10.7 percent compared to the previous month, the sharpest drop since the beginning of the pandemic in April 2020, while the Ifo business climate deteriorated in May for the first time after six consecutive increases.

"Unfortunately, a fundamental improvement in the economy is not in sight," said Commerzbank Chief Economist Jörg Krämer. As the USA, the most important buyer of goods "Made in Germany", threatens to slide into recession, German economic momentum is likely to be weighed down at the end of the year and also at the beginning of 2024, Deutsche Bank's economists expect. They therefore halved their growth forecast for 2024 from 1.0 to 0.5 percent. Commerzbank chief economist Krämer is even more pessimistic and predicts only stagnation.

Chief economist Holger Schmieding of Berenberg Bank remains comparatively optimistic: he expects growth of 1.3 percent for the coming year.

beb/Reuters