German Institute of Economics cuts 2023 GDP forecast on surge in energy prices

The German flag reflected in the windows of the Paul Loeb building in Berlin, Germany, November 19, 2020. REUTERS/Hannibal Hanschke/File Photo

BERLIN (Reuters) – Three of Germany’s leading economic research institutes have cut their forecasts for Europe’s largest economy next year, saying they will be hit by high energy prices due to the war in Ukraine.

The IfW Institute in Kiel and the IWH in Halle forecast Thursday that the economy will contract in 2023, with growth of 3.3% and 2.0% respectively from June forecasts.

IfW said the economy will contract by 0.7% while the IWH saw a more dramatic contraction of 1.4%. The RWI Institute has lowered its forecast for 2023, but still forecasts 0.8% growth.

This year, IfW, IWH and RWI still expect the German economy to grow, but not as strongly as previously thought, with projections between 1.1% and 1.4%.

The latest government forecasts see economic growth of 2.2% in 2022 and 2.5% in 2023.

“Germany’s economy is in a downward spiral,” summed up IfW’s economists in their forecast.

The expected loss of purchasing power will have a negative impact on the economy, as private consumption accounts for a large portion of economic output, the Institute said.

The Institute, part of a group that advises governments, now forecasts inflation to exceed 7% this year, well above the government’s average forecast of 6.1%.

Forecasts for 2023 are mixed, with the RWI inflation forecast low at 3.5% and the IWH above range at 9.5%.

The German government on Sunday announced plans to spend €65 billion ($65 billion) to protect consumers and businesses from the effects of soaring inflation. The allocated amount will be 95 billion euros.read more

($1 = 0.9999 Euro)

Reporting by Rene Wagner, written by Miranda Murray.Edited by Madeline Chambers, Andrew Cawthorne, Alexandra Hudson

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