According to a report from the German economy ministry, Germany is expected to narrowly escape recession and show modest growth in the first quarter of the year. The report noted that the possibility of a technical recession, characterized by two consecutive negative quarters, appears to have been averted. Forecasts for the year indicate a slight year-on-year increase in gross domestic product (GDP) for 2023 as a whole. Leading economic institutes anticipate a 0.3% growth rate for the German economy this year.
This improvement is attributed to the easing of material bottlenecks, declining energy prices, and favorable weather conditions. The Joint Economic Forecasts from the institute anticipate a 0.1% expansion in GDP in the first quarter, following a 0.4% contraction in the fourth quarter of 2022.
The ministry described the start of the year as “favorable,” citing the mild winter and ample gas storage levels, contributing to a drop in energy prices.
While consumer sentiment is expected to recover in the coming months, the report acknowledged that inflation-related losses in purchasing power continue to affect the economy.
Inflation rates are predicted to ease in the coming months, although they are expected to remain at a relatively high level. The forecast range for inflation in 2023 is between 5.4% and 6.6%, while for 2024, it ranges from 2.1% to 3.5%.
The report also highlighted potential risks to the economic outlook, including weak private consumption, deteriorating conditions in the construction sector, recent issues in financial institutions, and geopolitical uncertainty related to the war in Ukraine.
