The Bundesbank expects an economic slump in Germany in the coming year and high inflation rates beyond 2023.

"Economic output is likely to shrink initially, but we expect a gradual recovery from the second half of 2023," said Bundesbank President Joachim Nagel, explaining the latest forecasts by the central bank. However, the energy crisis is increasing inflation in Germany.

After growth of 1.8 percent in the current year, the experts at the Bundesbank expect gross domestic product (GDP) in Germany to fall by 0.5 percent in 2023. High energy costs as a result of the Russian war of aggression are burdening companies and consumers. Private households are reluctant to consume because of the overall significant rise in prices.

"Inflation is high and will only come down gradually"

In November, consumer prices in Germany were 10.0 percent higher than in the same month last year. A quick relaxation is not in sight. "Inflation is high and will only come down gradually," Nagel said. For the coming year, the Bundesbank expects inflation to fall from 8.6 percent to 7.2 percent - also because of the government's electricity and gas price brake. In 2024, the rate of inflation - measured by the harmonized index of consumer prices (HICP), which is decisive for monetary policy in the euro area - should therefore fall to 4.1 percent.

According to the Bundesbank forecast, economic output in Europe’s largest economy should increase again by 1.7 percent in 2024. "The macroeconomic production capacities should then only be utilized normally again in 2025," writes the Bundesbank.

Six months ago, the economists at the Bundesbank were significantly more optimistic, especially for 2023, although they had already revised their previous forecasts downwards in June. In June, the Bundesbank had forecast economic growth of 1.9 percent for the current year, and for 2023 the Bundesbank economists predicted growth in real gross domestic product (GDP) of 2.4 percent.