The institutes have the same reason for cautious optimism.
(Photo: IMAGO/Jochen Eckel)
Berlin Three leading German economic research institutes have improved their outlook for the German economy. The Kiel Institute for the World Economy (IfW) even assumes that there will be no contraction next year.
The gross domestic product (GDP) is expected to increase by 0.3 percent, according to the forecast published on Thursday. As recently as September, the people of Kiel had expected a decline of 0.7 percent.
The Ifo Institute in Munich had already raised its forecast on Wednesday. At minus 0.1 percent, the people of Munich still expect a recession in the coming year. Previously, however, they had assumed that the decline would be three times as large.
The Leibniz Institute for Economic Research (RWI) has corrected its GDP forecast for the coming year significantly downwards. In autumn, the people of Essen had still expected economic growth of 0.8 percent. They are now also expecting a decline of 0.1 percent in 2023, as they also announced on Thursday.
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The reason why this is still good news for further development: In contrast to the other leading institutes, RWI had assumed that the high energy prices would reach households at the end of the current year and thus consumption and thus the economy burden.
Now, however, the Essen researchers, like the other institutes, are assuming that this effect will largely only become apparent in the coming year. That is why they, too, have revised their forecast for GDP 2022 upwards: they are now expecting growth of 1.8 percent and not 1.1 percent, as was the case in autumn.
To a certain extent, the RWI has now followed suit: because the revision to minus 0.1 percent in 2023 is also accompanied by a significant GDP correction for 2022: the RWI is now expecting 1.8 percent, no longer 1.1 percent as in autumn.
Less inflation expected
The reason for the cautious optimism of the institutes is precisely that private consumption. “The prospects for the economy have brightened somewhat – with a high level of uncertainty,” explained the researchers from Kiel.
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“Wholesale prices for gas and electricity have fallen significantly in recent months – even if they are still at a high level,” it said. In addition, the burdens on private households and companies caused by the high energy costs would be cushioned by price brakes.
Ifo economics chief Timo Wollmershäuser explained: “Disposable income is still growing faster than prices.” This is mainly related to state transfers. For example, the federal government paid out a lump sum for energy prices. Gas and electricity price brakes will follow in the next few weeks.
The disposable incomes of consumers will probably continue to grow faster than prices.
(Photo: IMAGO/Jochen Tack)
This is also reflected in the institutes’ revised inflation forecasts. In the Kiel analysis, it looks like this: There, an inflation rate of 5.4 percent is expected in the coming year. In autumn, the economists had predicted 8.7 percent.
“Biggest risk is inflation”
The Ifo has also scaled back its inflation forecast quite a bit. The people of Munich only expect inflation of 6.4 percent in the coming year, they had previously forecast 9.3 percent. The RWI also expects only 5.8 percent for the inflation rate in 2023. This is mainly due to the expected decline in energy costs.
The gross domestic product (GDP) is expected to increase by 0.3 percent, according to the outlook published on Thursday by the Institute for the World Economy (IfW).
(Photo: dpa)
However, the Ifo denies that this would eliminate any risk of inflation. Because the core inflation rate – in which energy is excluded – is expected to be higher than previously expected. The 2023 core inflation forecast is now 1.3 percentage points higher at 5.8 percent than the autumn outlook. That would be a clear sign that energy prices would continue to spill over into other goods for a longer period of time.
The economists are therefore not giving the all-clear. “The German economy is facing a weak winter half-year,” wrote the Kiel researchers with a view to the technical recession that is still expected in the current winter half-year. Germany is moving “in crawling gear through the energy crisis”.
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RWI economics boss Torsten Schmidt also says: “The biggest risk for the economic development in Germany is currently the inflation development. The war against Ukraine also remains a significant risk factor.”
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