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Containers in the Port of Hamburg (archive image)

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High interest rates, expensive energy and weak exports are paralyzing the German economy more than previously forecast. According to the recently published economic report, the German Economic Institute (IW) expects real gross domestic product (GDP) to decline by up to 0.5 percent this year.

Most recently, for example, the International Monetary Fund (IMF) had expected a contraction of only 0.3 percent – and was thus already more pessimistic than in April. At that time, economic output was predicted to decline by 0.1 percent.

Due to its high focus on world markets and its high export quota, the German economy is suffering disproportionately from geoeconomic shocks such as the Ukraine war and tensions in relations with China, the IW researchers said. With its high proportion of industry by international standards and the importance of energy-intensive industries, it is also feeling the effects of existing supply risks and cost shocks more than other countries. At the same time, domestic demand is suffering from high inflation: private consumption is becoming a brake on the economy.

Expected decline

At the end of 2023, economic output will therefore only be at the level of the end of 2019, the IW experts predicted. For the 3rd and 4th quarters of 2023, they expect a decline in economic output.

On average in 2023, the employer-related institute expects 2.58 million unemployed, 160,000 more than in the previous year. The unemployment rate thus rises to a good 5.5 percent. Although no major redundancies are to be feared, the unemployed are finding it increasingly difficult to find new employment. According to the experts, the inflation rate of 2023.6 percent in 5 is likely to be only slightly below the previous year's level.