Price pressure is not expected to ease until 2024, and then only slowly.
Germany’s economy is experiencing huge supply shocks and bottlenecks in energy, intermediate products and labour are weighing on production and driving inflation to record highs, according to the winter 2022 economic forecast by the ifo Institute. Gross domestic product will contract in the 2022–23 winter half-year, pushing the German economy into recession.
From spring 2023 onward, the economy should then recover and grow at stronger rates in the second half of the year, when incomes will again rise more strongly than prices, ifo states.
GDP will increase by 1.8 per cent this year and contract slightly by 0.1 per cent next year. In 2024, growth will then be back up to 1.6 per cent.
Production of goods and services is under strain in nearly every sector. This not only limits production possibilities, but also drives up production costs as a result of supply-side shortages.
At the same time, demand for goods and services is still strong. Overall, the companies surveyed by the ifo Institute say that production capacity of the German economy, which has been reduced by the supply shocks, has thus been pushed to its limits since the beginning of the year.
As a result, prices not only rose because energy, raw materials, and intermediate products (most of which Germany imports from abroad) became noticeably more expensive. An additional factor in some sectors of the economy is that high demand enabled corporate profits to expand.
Inflation is expected to fall in the coming months. This will be ensured by the German government’s electricity and gas price brakes, which will take effect as of December.
The high inflation of consumer prices will reduce the real disposable incomes of private households, especially in the winter half-year, thus cooling consumer spending. It is not until the second half of the year that incomes are expected to increase more strongly than prices, and private consumption is therefore likely to pick up.
Taken together, overall economic output will fall by 0.3 per cent and 0.4 per cent quarter on quarter in the two quarters of the 2022–23 winter half-year.
Starting in spring 2023, the economy is expected to recover and grow at stronger rates in the second half of the year. All in all, GDP will increase by 1.8 per cent this year and contract slightly by 0.1 per cent next year. In 2024, growth will then be back up to 1.6 per cent.
In the euro area, price-adjusted GDP will shrink in the 2022-23 winter half-year before recovering slightly. Annual growth is therefore low at 0.6 per cent in 2023 and will not increase until the following year.
In the US, growth is expected to decline from 1.9 per cent in 2022 to 0.9 per cent in 2023 before rebounding to 1.5 per cent in 2024, ifo says.
In China, after growth of 3.4 per cent in 2022, price-adjusted GDP is expected to increase by 4.5 per cent and 4.8 per cent in the following years, ifo adds.
Fibre2Fashion News Desk (DS)