German economy to contract in 2023, predicts European Commission
The European Commission forecasts a 0.4% contraction in Germany's economy in 2023, citing high inflation due to factors such as the Russia-Ukraine crisis. This marks a decrease from the previously projected 0.2%. The country's GDP is expected to make a 1.1% rebound in 2024, lower than the earlier 1.4% projection, with a slump in the construction sector and a slowdown in exports contributing to the revised prediction.
Weak consumption and construction hinder growth
Germany's economic growth is expected to be negatively impacted by weak consumption and a decline in construction investment. However, the European Commission notes an increase in investment in equipment, which may help offset some of the negative effects. Though external demand is weak, net exports are anticipated to positively contribute to growth in 2023 due to falling imports.
Headline inflation is down compared to last year
The European Commission has also put Germany's headline inflation in 2023 at 6.4%, down from 8.7% last year. In H1 2023, energy and service price inflation declined more than expected, the commission claimed. However, service inflation will continue to be elevated due to rising wages. In 2024, Germany's headline inflation is likely to fall to 2.8%. This will be because of a gradual slowdown in goods as well as energy costs.
