Germany’s economy will contract more than previously expected is the latest assessment by the Institute for Economic Research (ifo Insititute), one of the country’s largest economic think-tanks

The Munich-based Ifo Institute says the German economy is expected to fall by 0.4 per cent this year, more than the 0.1 per cent it forecasted back in March this year. This projected contraction is as a result of sticky inflation taking its toll on private consumption.

The ifo Institute has cut its economic growth for Germany next year to 1.5 per cent, down from the 1.7 per cent it previously projected. Inflation is forecast to ease slowly from 6.9 per cent in 2022 to 5.8 per cent this year, down to 2.1 per cent in 2024.

6% rise in core inflation projected

The institute, which analyses Germany’s economic policy and is known for its monthly Ifo Business Climate Index for Germany is projecting that core inflation will increase to six per cent this year. This is up from 4.9 per cent in the previous year and should fall to three per cent in 2024.

Due to inflation, private consumption will fall by 1.7 per cent this year and will not rise again until 2024, when it is expected to post a 2.2 per cent increase. Ifo’s head of economic forecasts, Timo Wollmershaeuser, acknowledges that “the German economy is only very slowly working its way out of the recession. When we compare Germany with our main trading partners, these countries are at least expected to post growth.”

The ifo Institute forecasts eurozone GDP will expand by 0.6 per cent this year and the US by 0.9 per cent. The number of unemployed across Germany will rise slightly in 2023, but the unemployment rate will remain unchanged from the previous year at 5.3 per cent this year, rising to 5.5 per cent in 2024.

New government borrowing will fall from €106 billion (US$115 billion) in 2022 to €69 billion this year and 27 billion next year, according to Ifo’s estimates.