In order to be able to cope with the high costs of energy and food, consumers save elsewhere. Germany is also heading towards a recession for this reason. Their probability is now increasing again significantly. The hopes rest on the gas price brake and higher wages.
According to a study, the likelihood of a recession in Germany has increased significantly. For the current fourth quarter from October to December, the risk has risen to 80.8 percent, according to the indicator of the institute for macroeconomics and business cycle research (IMK), which is close to the trade unions. At the beginning of September, the probability for the following three months was still 64.1 percent. The early warning instrument, which works according to the traffic light system, is set to “red”, which indicates an acute risk of recession.
“We are heading towards a recession driven by declining consumption because many people are saving on other expenses in order to be able to pay energy and food prices,” said the scientific director of the IMK, Sebastian Dullien. “It is therefore important that the purchasing power of the population is supported.” The foreseeable relief through a gas price brake is an important contribution to this.
If the Gas Price Commission’s proposal were to be implemented one-to-one, it would save private households around 35 billion euros by spring 2024. That cushions the feared decline in consumption and could increase economic growth by around one percentage point, while inflation should be noticeably lower than without the gas price brake, said Dullien.
Appropriate wage increases are another building block for stabilizing purchasing power and the economy. According to the federal government, Germany is slipping into a recession because of the energy crisis. The economy is likely to shrink by 0.4 percent in 2023, according to the autumn forecast presented by Federal Minister of Economics Robert Habeck on Wednesday. These are serious times. “We are currently experiencing a serious energy crisis, which is growing more and more into an economic and social crisis,” said the Green politician. The main reason for the bleak prospects is the stopped gas supplies from Russia. This slows down industrial production, especially in the energy-intensive area.
