Leading German economic institutes on Thursday slashed their 2023 economic growth forecast for the country to minus 0.6 percent, a "strong downward revision" of 0.9 percentage points from the spring projection.
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Although Europe's largest economy is still expected to recover next year, the institutes now expect gross domestic product (GDP) will only grow by 1.3 percent in 2024, instead of 1.5 percent.
The joint forecast was prepared by the German Institute for Economic Research (DIW Berlin), the ifo Institute for Economic Research, the Kiel Institute for the World Economy (IfW Kiel), the Halle Institute for Economic Research (IWH) and the RWI Leibniz Institute for Economic Research, in cooperation with the Institute for Advanced Studies Vienna.
"Wage increases have meanwhile followed the price hike, energy prices have fallen, and exporters have partially passed on their higher costs, so that purchasing power is returning," the institutes said in a statement.
"On the price front, the situation is gradually easing," the institutes added. The German inflation rate is expected to remain high, at 6.1 percent in 2023, before normalizing at 2.6 percent in 2024.
To curb inflation, the European Central Bank (ECB) has raised its three key interest rates (those on the main refinancing operations, the marginal lending facility and the deposit facility) to 4.5 percent, 4.75 percent and 4 percent respectively.
The global economy is also expected to expand only moderately this winter. The "weakness of the industrial economy is likely to persist in the coming months, and high interest rates are dampening overall economic demand," the economic institutes added.
Major central banks are to start lowering their key interest rates again in the coming year, so that investment activity, particularly in housing construction, will "gradually regain some momentum."
On Tuesday, the German Macroeconomic Policy Institute (IMK) said the country's economy would "continue to recover only sluggishly in 2024," slashing its growth forecast from 1.2 percent to 0.7 percent. ■