In their autumn report presented on Thursday, the institutes expect the German economy to grow by a total of 1.4 percent this year – due to the good first half of the year. Gross domestic product (GDP) is likely to have shrunk slightly as early as the third quarter, and a significant decline is expected in the winter months.
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In the coming year, GDP will therefore decline by a total of 0.4 percent. Starting from this low level, the researchers expect growth of 1.9 percent again in 2024. The sharp rise in gas prices increased energy costs “drastically” and led to a “massive overall economic loss of purchasing power,” according to the report. In the medium term, the situation is likely to “relax a bit” – but gas prices are likely to be well above the pre-crisis level. “This means a permanent loss of prosperity for Germany.”
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Experts estimate that inflation will reach an average of 8.8 percent next year – many private households will not have to pay the higher energy bills until next year. Economists expect inflation to rise by 8.4 percent this year. In 2024, the two percent mark will be “gradually reached again”.
According to the Federal Statistical Office, inflation in September reached its highest level in more than 70 years: it is expected to be 10.0 percent compared to the previous year. Energy prices rose by 43.9 percent.
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According to the report, the labor market has a “stabilizing effect” on the economy. The demand for new workers is likely to decline given the economic downturn. “Due to the lack of staff in many sectors, no increased unemployment is to be expected despite the economic crisis,” said Torsten Schmidt, head of economic activity at the RWI – Leibniz Institute for Economic Research.
Wages will therefore rise much more than in the past. In 2024, the increases would be significantly higher than inflation, so that purchasing power would be “balanced” again.
Companies could also “mostly” cope well with the energy price shocks, said Schmidt. You would have high order backlogs, the delivery bottlenecks would decrease at the same time. So far, they have been able to pass on the increased costs to consumers. The exception is the chemical industry. Consumer-related services would also clearly feel the loss of purchasing power.
The research institutes made the calculations in the event that there is no gas shortage in winter. In the event of an emergency, on the other hand, companies would have to further restrict their production. The researchers then expect a minus of 7.9 percent in 2023 – and a further minus of 4.2 percent in 2024.
The Federation of German Industries stated that with their forecast of minus 0.4 percent for 2023, “the institutes may have underestimated the force and duration of the downturn”. Inflation is also likely to increase further in the coming year.
The energy price shock “will continue to have an effect for a very long time,” says the report. Oliver Holtemöller from the Leibniz Institute for Economic Research in Halle also pointed to a positive side: The opportunity in the crisis lies in “new things being developed more quickly”, such as energy-saving technologies.
The economists recommended that the government provide targeted support to companies and private households. Consumers must be able to pay their electricity and gas bills, said Schmidt. The opinion of the institutes serves the Federal Government as a basis for its own prognosis.
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