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German trade hub: the port of Hamburg
Photo: Christian Charisius / dpa
According to the Bundesbank's forecast, the German economy will shrink again at the beginning of the year and thus slide into a recession.
"Economic output in the first quarter of 2023 is likely to be lower again than in the previous quarter," says the monthly report published on Monday.
At the end of 2022, Europe's largest economy had already shrunk by 0.2 percent after robust growth in the summer.
If there are two negative quarters in a row, there is talk of a recession.
Industrial production started the year from a depressed level, while exporters struggled with falling foreign demand.
The construction industry is also likely to cool down further in view of increased interest and material costs.
"In addition, inflation remains high and continues to reduce the purchasing power of private households," according to the economists at the Bundesbank.
»Private consumption should therefore also fall at the beginning of 2023.«
Debt will continue to rise
The Bundesbank isn't exuding much optimism for the rest of the year either.
"Things could slowly pick up again as the year progresses," said the central bank, which then expects exports to pick up.
»However, no significant improvement is in sight.« Gross domestic product should »probably decline slightly« for the year as a whole, albeit not as much as feared in December.
At that time, the Bundesbank had predicted a calendar-adjusted minus of 0.5 percent.
The federal government and some economists now believe that slight growth is possible.
The Bundesbank also expects a higher government deficit.
"Overall, expenses are likely to rise much faster than income," she expects.
“One contributing factor is that the high inflation is making government purchases of goods and investments more expensive.” In addition, spending on defense and climate policy is likely to increase significantly.
"In the case of government revenue, on the other hand, the boom in profit taxes in the previous year suggests that it will now grow much more slowly." In 2024, temporary support measures such as electricity and gas price brakes are likely to expire again.
However, according to its medium-term financial planning, the federal government is “still making significant deficits in its extra budgets, especially in the funds for climate policy and the Federal Armed Forces”.
beb/Reuters
