Berlin In an international comparison, Germany continues to fall behind in terms of economic prospects. The economists only expect growth of 0.2 percent for 2023, as they announced on Wednesday. The reasons are high inflation, problems in foreign trade and a collapse in the construction industry. In 2024, growth should then be 1.3 percent.
Measured against comparable countries, the Federal Republic is in a bad position. This is shown by new figures from the industrialized countries organization OECD on the leading economic nations of the G20. Only in five of these countries are the growth prospects worse than in Germany in the next two years – including special cases such as Russia or Turkey.
There is also much to suggest that the German economy will not even achieve weak growth in 2023, i.e. that it will still remain below the forecast of the economic experts. This was created before the turbulence on the banking market in the past few days. Experts expect that these will have consequences for economic development.
The economic barometer of the Mannheim Center for European Economic Research (ZEW) fell in March for the first time in five months. “The currently high level of uncertainty is also reflected in the economic expectations,” said ZEW President Achim Wambach.
In addition, it is not clear whether the energy supply in Germany is secured for next winter. “We’re not out of the woods yet!”, Veronika Grimm told the Handelsblatt.
The consequences of war weigh on the economy
The new economic forecasts from the German Council of Economic Experts and the OECD are better than the previous studies from the autumn. Nevertheless, the consequences of the Ukraine war continue to weigh on the German economy.
Above all, the price development remains the big problem. “Inflation will continue to dampen growth far into the coming year,” said Monika Schnitzer, Chairwoman of Economics.
The Advisory Council expects consumer prices to rise by 6.6 percent this year. Inflation is expected to drop to three percent next year. But Germany continues to be particularly hard hit by inflation. When it comes to inflation, the forecast is worse than for Germany in only five G20 countries.
Although energy prices have now fallen significantly again, the consequences of last year’s record highs are still clearly being felt. Because many companies are only now passing on their increased costs for gas and electricity to their customers. At the same time, wages are rising. The increase in energy prices is now spreading to the general price level. “Low energy prices do not mean monetary stability,” said Ulrike Malmendier, a business wise man.
The consequences paralyze growth.
(Photo: IMAGO/UJ Alexander)
According to the OECD, core inflation, i.e. the price increase excluding energy prices, is also expected to rise by 5.7 percent this year. Only in the coming year will it then be just as high as the inflation rate with a plus of 3.1 percent.
All in all, this means that people continue to be reluctant to spend their money. According to the Advisory Council, private consumption will fall by 0.5 percent this year.
Banking crisis fuels economic concerns
Inflation is also a particular problem for Germany because the industry is heavily dependent on international trade. As a result, many cannot simply raise their prices to pass on the increased costs. Then the customers would buy from the competition from other countries. German companies are often left with only austerity measures or reduced production – that reduces growth.
At the same time, the economy in other countries is far from running smoothly enough for German exports to benefit. “The external economic environment is still quite weak,” said Schnitzer.
For 2023, economists expect at most a low GDP growth for Germany.
(Photo: dpa)
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These factors could ensure that the German economy will develop even weaker in 2023 than the top economic advisory body of the federal government assumes. The Ifo Institute expects a shrinkage of 0.1 percent. A decline in economic output would be unavoidable at the latest when the banking crisis spreads.
The consequences of the banking crisis for the economy are still unclear.
(Photo: Bloomberg)
The council of experts is still relaxed. “We see no threat to financial market stability,” said Malmendier. But the uncertainty is great.
At the same time, the interest rate hikes by the European Central Bank would lead to fewer loans being granted. This would slow down investment activity.
This applies above all to construction. The German Council of Experts expects a decline of 3.7 percent this year.
Banking crisis and inflation are not purely German problems. But a look at comparable industrialized countries shows that other economies are coping with the consequences much better.
USA: Recession averted if it weren’t for the bank collapse
Unlike in Germany, the high level of inflation in the USA is hardly triggering fears of a recession. Unlike in Germany, inflation in the USA rose more for homegrown reasons. The US Federal Reserve was therefore able to bring it under control more quickly – also because it intervened earlier.
The US consumer price index rose just 6 percent in February, the smallest increase since September 2021. And the unemployment rate is currently 3.4 percent, its lowest in more than 50 years. The OECD has raised its US growth forecast for 2023 by a full point to 1.5 percent. But it is also clear that optimism will be tested by the collapse of the Silicon Valley Bank.
Australia: labor market is booming, China business gives hope
Australia, on the other hand, has a good chance of achieving the strongest economic growth among the large industrialized countries. The OECD expects growth of 1.8 percent. The unemployment rate fell surprisingly sharply to 3.5 percent in February – just above the record low of recent decades.
>> Read also: Veronika Grimm criticizes the planned heating ban
The business climate index published monthly by the National Australia Bank (NAB) was still well above the long-term average in March, despite high inflation and rising interest rates. Australia’s resource wealth is likely to remain an important pillar. High demand for coal and minerals drove Australia’s exports to a new record high last year.
The country also hopes that business with its most important trading partner China will pick up again. On the one hand, the demand in the People’s Republic is increasing immensely. On the other hand, the political trade disputes between China and Australia are increasingly being resolved.
France: inflation lower across the board
Last year, the economy in France grew by 2.6 percent, more than a quarter more than in Germany. The trend is likely to continue in 2023. The OECD expects that the second largest economy in the EU will grow by at least 0.7 percent this year.
Above all, strong domestic demand is driving growth. Inflation was consistently lower last year than in Germany – also because the government introduced generous price caps for electricity and gas at an early stage.
How President Macron’s pension reform is handled will also determine France’s growth prospects.
(Photo: dpa)
But there is one big unknown in France: the ongoing protests and strikes against President Emmanuel Macron’s pension reform could turn into a brake on growth.
The insurer Allianz Trade has tried to take into account the costs of the strikes in its forecast – and expects the French economy to grow by just 0.3 percent this year.
Spain: EU billions in aid drive the economy
In contrast, economic output in Spain is expected to increase by 1.7 percent this year – almost six times as much as in Germany. This is mainly due to the fact that the energy prices hardly affect the Spanish economy. The country has never been dependent on Russian gas. And the price cap introduced in June 2022 pushed down inflation and boosted growth. In January, the harmonized index of consumer prices in Spain was 5.9 percent, the second lowest in the EU, according to Eurostat.
The growth is also pushing billions in aid from the European reconstruction fund. Spain has already received 31 billion euros. Brussels approved the payment of a further six billion euros in February. Due to the accelerated energy transition, Spain is currently experiencing a boom in renewable energies.
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