Germany’s economy will shrink next year as soaring energy costs caused by Russia’s throttling of gas supplies reduces household disposable income and consumers rein in their spending, according to a leading economic research group.
The Ifo Institute in Munich warned that the surge in electricity and gas prices was “wreaking havoc” on the German economy and would lead to a 0.3 per cent decline in gross domestic product next year, down from a growth of 1.6 per cent this year.
The main cause of the forecast fall in output is the expected “decline in private consumer spending” caused by energy suppliers “markedly adjusting their electricity and gas prices in the light of high procurements costs, especially at the beginning of 2023”, Ifo said.
The government in Berlin recently announced a €65bn relief package to cushion the impact of the energy crisis on households, but Ifo said this would “fall far short of offsetting” the blow to household disposable income, which it predicted would drop sharply.
German inflation would average 9.3 per cent next year, up from 8.1 per cent this year, Ifo said, predicting consumer price growth would peak at 11 per cent in the first quarter.
Last week, the Kiel Institute for the World Economy cut its forecast for German GDP next year by 4 percentage points to minus 0.7 per cent, warning: “With the high import prices for energy, an economic avalanche is rolling towards Germany.”
Europe’s largest economy, which shrank 4.6 per cent after coronavirus hit in 2020, rebounded last year with growth of 2.9 per cent, according to the World Bank. But in the three months to June, the German economy stagnated from the previous quarter.
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