23.03.2023
Source: Energy & Management Powernews
The economic experts no longer expect a recession, as in the annual report for 2023. Thanks to the stabilized energy supply, they expect growth of 0.2 percent.
The experts of the German government's Council of Economic Experts presented an upwardly revised economic forecast in Berlin on March 22. Overall, however, the situation remains tense, the economic experts noted. In particular, high inflation of 6.6 percent and the rising cost of capital are leading to a reluctance to invest, the experts fear. The EU Commission had also slightly increased its expectations for the German economy.
In the current year, the gross domestic product (GDP) could grow by 0.2 percent, according to the forecast of the Council of Economic Experts. In its annual report, the panel had assumed that it would contract by the same amount. For 2024, the economic experts even expect growth of 1.3 percent.
In view of the high inflation, the European Central Bank (ECB) had begun to reduce its bond holdings and raised key interest rates significantly. This worsened financing conditions for households and companies, which dampened both consumer demand and investment, it said in Berlin.
Dampened by high prices and interest rates
"The inflation-related loss of purchasing power, poorer financing conditions and only slowly recovering foreign demand are preventing a stronger upturn this year and next," explained chairwoman Monika Schnitzer. According to the panel's assessment, a noticeable easing in consumer prices is not expected until next year. This is due to rising wages and high producer prices, which should support inflation for the time being, panel member Martin Werding estimated.
"Inflation is still far from the ECB's target of 2 percent, so further interest rate hikes are likely to be necessary this year. However, the high level of uncertainty in the financial markets in recent weeks makes it more difficult for central banks to fight inflation," explained Ulrike Malmendier. The tighter monetary policy is only likely to have a noticeable impact on inflation in the course of the year and slow down its development noticeably. In the coming year, inflation is expected to fall to the level of 2021 at around 3.0 percent.
"Low" energy-saving incentives
In the updated forecast, the panel also warned that even with a view to the coming winter, there are still considerable risks in the energy supply and the prices for it. "We must continue to save energy extensively," appealed the expert Veronika Grimm. In this context, she regretted that even solvent households benefited from the energy price brakes and too little was encouraged to save.
Despite the tense economic situation, the labor market in Germany is developing stably. Employment is expected to increase slightly by the end of 2024. For effective wages, the Council of Economic Experts expects a significant increase of 5.9 and 4.5 percent in 2023 and 2024, respectively, due to the recent higher wage settlements and additional inflation compensation premiums. "At least for 2023, wage growth is lower than expected inflation. Real wages are not expected to rise until next year. This is expected to stimulate private consumption," Achim Truger said.
Public finances better
The outlook for public finances has improved noticeably, he said. "In particular, the expected expenditure on energy price brakes is significantly lower than, assumed in the fall of 2022," the council notes. The wise men expect net lending to GDP of -1.6 percent in 2023 and -0.4 percent in 2024, and the debt-to-GDP ratio is expected to fall from 67.4 percent in 2022 to 63.5 percent next year.
One risk, however, was posed by developments in global finance, as in the closure of Silicon Valley Bank and the takeover of Credit Suisse by UBS. However, the Council of Economic Experts does not believe that financial market stability is currently at risk. Unlike in the 2018 financial crisis, no worthless products were the cause of the banking problems.
Author: Susanne Harmsen
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