Why will Germany's recession be more severe than expected?

The Ifo Institute's recent projections indicate that Germany's recession will be more severe than initially anticipated due to sticky inflation negatively affecting private spending.

What is the projected decline in Germany's GDP?

The German GDP is projected to fall by 0.4% in contrast to the previous estimate of a 0.1% decline.

What are the reasons behind Germany's economic decline?

The larger-than-expected decline in the German economy is attributed to weak spending power, rising interest rates, and low manufacturing order books.

Is Germany gradually emerging from the recession?

Yes, according to Timo Wollmershaeuser, the head of economic predictions at Ifo, Germany is gradually emerging from the recession.

How does Germany's economic performance compare to its trading competitors?

Germany's primary trading competitors are expected to achieve growth, while Germany's economy remains the worst-performing major country in the eurozone.

What are the inflation projections for Germany in the coming years?

Inflation is anticipated to gradually decrease from 6.9% in 2022 to 5.8% this year and 2.1% in 2024.

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Germany’s recession will be more severe than expected

Kinjal NarangAugust 1, 2023

128 2 minutes read

Table of Contents

Germany’s recession will be more severe than expected

Germany’s recession will be more severe than expected, as per the IFO Institute’s recent projections. The larger-than-expected decline is attributed to sticky inflation negatively impacting private spending. While Germany is gradually emerging from the recession, its GDP is projected to fall by 0.4%, contrasting with the previous estimate of a 0.1% decline. In comparison, Germany’s primary trading competitors are predicted to achieve growth, with IFO forecasting a 0.6% GDP growth for the eurozone and 0.9% for the US in the current year. Furthermore, the economic institute revised its estimates for Germany’s GDP growth in 2024 from 1.7% to 1.5%.

The rise in Germany’s inflation

- It is anticipated that inflation will gradually decrease from 6.9% in 2022 to 5.8% this year and 2.1% in 2024.
- The IFO Institute predicts that core inflation would rise to 6% this year from 4.9% last year before declining to 3% in 2024.
- According to the economic institute, private consumption would decline by 1.7% this year as a result of inflation.
- It won’t grow once more until 2024 when a 2.2% increase is predicted.
- While the unemployment rate will remain unchanged from the prior year at 5.3% this year and climb to 5.5% in 2024,
- The number of unemployed people will slightly increase in 2023.
- IFO forecasts a decline in new government borrowing from 106 billion euros ($115 billion) in 2022 to 69 billion this year and 27 billion next year.

Second quarter German economic stagnation and hazy future

1. The German economy contracted in Q2 2023 due to:
  - Weak spending power,
  - Rising interest rates, and
  - Low manufacturing order books.
2. Seasonally adjusted GDP remained unchanged from the previous quarter.
3. Economists had projected a mild expansion of 0.1%, but the economy missed this target after a minor winter recession.
4. Germany’s economy remained the worst-performing major country in the eurozone.
5. German household consumption stabilized in the second quarter after a weak winter half-year.
6. German Economy Minister Robert Habeck acknowledged a slight upward trend in private consumption and investment but deemed the numbers insufficient.

In conclusion, Germany’s recession is predicted to be more severe than initially anticipated, given the impact of weak spending power, rising interest rates, and low manufacturing order books. The economy’s failure to meet projections for mild expansion adds to concerns about the overall economic outlook.