German economic growth in 2023 should be modest

The European Commission, which had previously predicted a 0.6% contraction, indicated on Monday that the German economy will‌ increase a little this year.

The European Commission projects 0.2% GDP growth for 2023 for the largest economy in Europe, which is higher than it had predicted in the fall due to lower energy prices and policy support for individuals and businesses.

Despite a recent increase in confidence, the economy is still predicted to see a modest fall in early 2023 because household heating costs are still rising and because government assistance for January and February will only be paid out in March, according to the Commission.

In 2024, growth is anticipated to pick up to 1.3%, according to projections from the Commission. The increase in energy prices and growing input costs caused the German consumer price index, which is harmonized when compared with other European Union nations, to reach a peak in October at 11.6%. Consumer costs have somewhat decreased since that time.

The limitations on gas and electricity prices are anticipated to lessen the impact of the high wholesale energy price growth in 2023. However, the Commission predicted that continuingly growing production prices would keep inflation high, with a predicted 6.3% in 2023. German inflation is predicted to fall to 2.4% in 2024.

EU executive updates 2023 growth projection for the euro zone

According to the European Commission, this year’s economic growth in the euro zone is likely to be greater than originally anticipated, and inflation will be lower than expected by the end of 2022.

The 20 nations that use the euro are expected to have economic growth this year of 0.9%, as opposed to the 0.3% anticipated in November, according to the EU executive arm.

Given that growth in the final three months of 2022 was 0.1% quarter-over-quarter and that the Commission anticipates a 0.0% number in the first three months of 2023, the single currency area will narrowly avoid the technical recession that it had predicted three months earlier.

According to the Commission, there is a lot of uncertainty surrounding the predictions, although growth risks are generally balanced. Domestic demand could end up being stronger than anticipated if recent drops in wholesale gas prices significantly translate to lower consumer costs and consumption holds up better than expected, the report said. However, given ‌ ongoing geopolitical concerns, a potential reversal of that decline “cannot be ruled out,” the report stated.

The Commission stated that after China’s reopening, external demand may potentially prove to be more robust, which could, nevertheless, feed global inflation, but that inflation risks were mostly connected to developments in energy markets.

As a result of a spike in oil and food prices brought on by Russia’s invasion of Ukraine, consumer inflation in the euro zone, which reached record highs of 10.6% in October, is expected to slow to 5.6% this year and 2.5% in 2024. The decline would be larger than ‌ previously anticipated 6.1% for 2023 and 2.6% for 2024.