German government expects economy to shrink 0.4% in 2023

Germany’s government expects the economy to shrink by 0.4% this year due to high inflation, high energy prices and weak international trade, government sources told Reuters on Friday.

German Economy Minister Robert Habeck will on Wednesday present the government’s autumn forecasts, which will show the economy is then expected to grow 1.3% next year and 1.5% in 2025, the sources said.

The government had predicted growth of 0.4% for 2023 in its April forecast, but weakness in the industrial sector and the highest interest rates in a decade are spurring fear of another recession this year in the euro zone’s largest economy.

Inflation is expected to come in at 6.1% this year and at 2.6% next year, the sources added.

Last month, the European Commission cut its forecast for the German economy to a 0.4% contraction this year, compared with the 0.2% growth projected previously.

Five economic institutes are predicting Germany’s economy will shrink by 0.6% this year, as the recovery of industry and private consumption has been slower than previously expected.

The German economy suffered a recession in the last quarter of 2022 and the first quarter of 2023. A technical recession is defined as two consecutive GDP contractions.

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