According to estimates by the Kiel Institute for Economic Research (IfW), the high energy prices and the retirement age of the baby boomers will reduce German economic output over the years. "The aging of society is severely depressing growth prospects because fewer people will be working in the future," said Stefan Kooths, head of economic activity and Vice President of the IfW, according to a statement on Monday. "In addition, as a result of the war in Ukraine, energy resources that play an important role in many production processes have become scarcer and more expensive. This also reduces Germany's economic power."

According to the institute's medium-term projection, the possible increase in economic output with normal utilization of production capacities should only be just under 0.7 percent at the end of 2027, while the long-term average before the Corona crisis was 1.3 percent. "The German economy has been operating below its potential since 2020, and this is likely to continue until 2025. There has never been such a long phase of underutilization in reunified Germany," it said. "Overall, the gross domestic product in this period is likely to be around 300 billion euros lower than would be possible with normal utilization of the production factors." Without the sharp rise in gas and electricity prices, overall economic capacities would probably have been utilized more or less normally this year.

The IfW researchers cite demographics as a factor that has been known for a long time: According to this, more people will regularly retire after 2023 than new ones will be added. On average, the German labor market loses 130,000 workers per year. "Higher immigration and a higher participation rate in the labor market - for example through better childcare or more flexible working time models - can dampen the effect, but cannot stop it."

IfW medium-term projection for Germany