Is the German economy in recession or not? In any case, the economic forecasts do not agree on the continuation of the economic performance of the country. Commerzbank is cautiously optimistic, the German Institute for Economics sees things a little differently.
So far, the German economy has held up surprisingly well. The state is pumping a lot of money into the gearbox and, according to Commerzbank, could pretty much prevent a recession in 2023. This means that some experts are changing their assessment of the situation, because as late as September it was still assumed that the economy would contract significantly by around 1.5% over the coming year.
The cost of credit is rising
More recently, Germany recorded an uptick of 0.4% growth in the third quarter of the year. In October, industrial production did not decline as expected, but only by 0.1% compared to the third quarter. This makes diving possible. The rationing of natural gas, which has now become improbable, allows us to hope that there will be no drop in economic production.
But the tightening of monetary policy poses new challenges for businesses. Interest rates are rising, as are borrowing costs. At the same time, consumer behavior could reverse, leading to lower sales.
The current economic forecasts from the German Institute for Economics (IW) also look like this. It sees Germany sinking into recession in 2023 and anticipates a contraction of 0.75%.
The war weighs on both consumers and businesses
From 2022, companies have had to face many challenges. The war in Russia has triggered an energy crisis, weighing on both consumers and businesses. Inflation and rising interest rates did the rest to slow economic growth.
According to economic researchers, that won’t change as quickly in 2023 either. Although the global economy is expected to grow by 2% overall, Germany has to accept budget cuts. The energy crisis and the threat of production losses will be responsible for this. Supply chains will remain disrupted and thus hamper business as usual processes.
The construction sector is particularly affected
This development will particularly affect the construction industry. This struggles with a lack of materials as well as a lack of skilled workers and rising interest rates. So far private consumption has at least supported the economy, but according to the IW 2023 this will change.
However, this development is unlikely to have an impact on the labor market. According to this forecast, the unemployment rate should only increase from 5.3 to 5.4%. But the danger posed by Russia’s war on Ukraine hangs over all assessments. Overall, however, the German economy has to bear a loss of prosperity.
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