The electricity and gas price brake could significantly lower the inflation rate in the coming year and thus cushion the impending recession a little. The Ifo Institute for Economic Research in Munich came to this conclusion on Wednesday.

According to a forecast by the Ifo Institute, the German economy will probably shrink by only 0.1 percent in the coming year. The recession in the winter half-year will be milder than expected, and “after that it will go up again,” said the head of the Ifo forecasts, Timo Wollmershäuser, on Wednesday. Due to the electricity and gas price brake, the inflation rate is likely to fall from 7.8 percent this year to 6.4 percent in the coming year. In autumn, the economic researchers had expected an increase to 9.3 percent.

With economic growth of 0.4 percent, the third quarter of this year was “much better than expected”, said Wollmershäuser. The Munich researchers now expect economic growth of 1.8 percent for 2022 instead of the previous 1.6 percent. In the winter months in particular, the high inflation will cause the real income available to private households to fall and the economy to cool down as a result. “It is only from the second half of the year that incomes are likely to increase more quickly than prices and private consumption should therefore pick up speed,” the institute said. This means that economic output will only shrink by 0.1 percent in 2023, instead of the 0.3 percent expected in autumn.

Short-time work is likely to increase again temporarily in the winter half-year and the increase in employment will come to a standstill. According to the forecast, the unemployment rate will increase from 5.3 percent this year to 5.5 percent in the coming year.

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