Economy: "Economy": High inflation is slowing down the upswing

There is no recession in Germany - but a sustained upswing is not yet in sight.

Economy: "Economy": High inflation is slowing down the upswing

There is no recession in Germany - but a sustained upswing is not yet in sight. High inflation is reducing consumers' purchasing power, and poorer financing conditions due to rising interest rates are slowing down the economy. In addition, there is a global economy that is only slowly recovering from the consequences of the corona virus. These are the core messages of the five "wise men".

One has to reckon with the fact that the sharp increase in prices will dampen growth well into the coming year, said Monika Schnitzer, chairwoman of the German Council of Economic Experts, on Wednesday in Berlin.

Mainly thanks to the mild winter, the worst scenarios did not materialize - such as a gas shortage that would have left deep scars. The economy showed itself to be resilient in the winter half-year, said Schnitzer. "Overall, the economy is recovering slowly." According to the panel, significant economic damage could result from a possible gas shortage in the coming winter. If the discipline to save energy slackens, Germany faces a hard winter of 2023/2024.

Recession: Germany is turning a corner

For the current year, the gross domestic product (GDP) should grow by 0.2 percent according to the estimates of the "Wirtschaftswise" newspaper. The federal government also predicts this value. The Federal Republic is thus narrowly avoiding a recession. The "economic wise men" had previously assumed that GDP would shrink by 0.2 percent in 2023. For the coming year, the experts have a growth of 1.3 percent on the slip.

Due to an imminent gas shortage due to the stop in Russian deliveries, they had predicted a recession in the autumn. The situation on the energy markets has eased since then. According to the forecast, the German economy is not yet really taking off again: "The inflation-related loss of purchasing power, the poorer financing conditions and the only slowly recovering foreign demand are preventing a stronger upswing this year and next," said Schnitzer.

Inflation remains high

In the current year, too, consumers must be prepared for further price increases. The "economic experts" expect an inflation rate of 6.6 percent on average for the year. According to revised data from the Federal Statistical Office, consumer prices had increased by 6.9 percent in 2022.

Inflation means a loss of purchasing power and dampens consumption, which is an important pillar of the economy. According to the experts, higher producer prices and the expected wage increases should keep inflation high well into the coming year.

The fact that energy prices are falling on the world markets is not yet a reason for consumers in this country to give the all-clear, said the expert Ulrike Malmendier. At the latest in the cold season they should put on again. Core inflation, i.e. inflation without energy and food, is decisive. "It continued to accelerate in the fourth quarter of last year." And that will continue in the next three quarters.

According to the assessment of the committee, a noticeable relaxation in consumer prices is not to be expected until 2024. At a rate of 3.0 percent, inflation should not even be half as high as this year.

High risks - but no banking crisis

The experts consider a banking crisis as a result of the turbulence in Switzerland and the USA to be unlikely. "We would like to state that we see no threat to the stability of the financial markets at the moment," emphasized Malmendier. The situation is different than in 2008. The market between the banks works well and the supply of credit to the real economy is secured.

The "business wise men" still see risks in the energy supply. "In order to refill the gas storage completely and to prevent a gas shortage in the coming winter, we must continue to save energy extensively," said the expert Veronika Grimm. However, it is questionable whether industry, as the biggest saver, will continue its efforts even with lower energy prices.

The companies are also a long way from a sigh of relief, said Martin Wansleben, General Manager of the German Chamber of Industry and Commerce. Federal support programs and catch-up effects from the Covid years should actually boost the economy. However, this is offset by high energy prices and weakening global demand. "Therefore, the urgently needed investment boost is currently missing."

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