The German government will predict a contraction for this year instead of sluggish growth when it updates its outlook for Europe’s biggest economy next month, highlighting the nation’s plight as its industrial sector struggles.
(Bloomberg) — The German government will predict a contraction for this year instead of sluggish growth when it updates its outlook for Europe’s biggest economy next month, highlighting the nation’s plight as its industrial sector struggles.
Gross domestic product is likely to shrink again in the third quarter and expand only slightly in the final three months of the year, meaning the economy will contract in 2023 on an annual basis, according to people familiar with the revised forecast, who asked not to be identified ahead of publication.
Instead of growth of 0.4% for the full year predicted at the end of April, the government will downgrade its outlook to a contraction of as much as 0.3%, one of the people said. The Economy Ministry is due to publish its fall forecasts on Oct. 11 and the final figures could still change depending on developments in coming weeks, the people added.
A spokesman for the ministry declined to comment.
The revision would bring Germany into line with other forecasters, including the International Monetary Fund and the European Commission.
The IMF said in July it expects German GDP to shrink by 0.3% this year, making it the only Group of Seven nation to suffer a contraction. The Washington—based fund sees the wider euro area growing by 0.9%, the UK by 0.4% and the US by 1.8%.
The Commission was even more downbeat about Germany when it published updated forecasts for this year on Monday, predicting a contraction of 0.4%.
Factors holding Germany back include weak demand from China, a shortage of skilled workers and the lingering effects of the energy crisis combined with sticky inflation which is crimping domestic demand.
“Overall, current economic indicators do not yet point to a sustained recovery in the coming months,” the Economy Ministry said Wednesday in its latest monthly report.
“Economic development is therefore likely to remain very weak in the third quarter and is not expected to pick up speed until around the turn of the year,” the ministry added.
While Germany will lag behind this year, it will bounce back and outperform most of its European peers next year, the people said. The IMF expects German expansion of 1.3% in 2024 and the Commission sees growth of 1.1%.
In a speech Wednesday in Berlin, Chancellor Olaf Scholz said government investment next year of more than €100 billion ($107 billion) will help revive the economy. In a Bloomberg interview in January, he had said that he was sure Germany would avoid a recession this year.
“In the old days, this would have been called a gigantic economic stimulus package, but it is not, because it is geared toward investment and is not intended to counteract the policies of the central bank,” Scholz said at a German Brands Association forum.
“But there is real power behind it, which will also make itself felt in our economy.,” he added.
–With assistance from Zoe Schneeweiss and Kamil Kowalcze.
(Updates with Scholz comments starting in 12th paragraph)
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