The Ukraine war and the energy crisis are clouding economic expectations. As the Kiel Institute for the World Economy explains, economic output will be four percent lower at the end of 2023. However, there seems to be some hope.
The energy crisis is weighing heavily on the German economy and is likely to cost four percent of economic output in the foreseeable future. The Kiel Institute for the World Economy (IfW) said that compared to the economic expectations before Russia’s attack on Ukraine, economic output will fall by 180 billion euros in 2022 and 2023 alone and will be four percent lower “at the end of this period”, it said.
The crisis is related to the lack of Russian energy supplies – since then Germany has been making considerable efforts to procure the raw materials elsewhere and at higher prices and is also increasing the focus on renewables in order to become independent of fossil fuels more quickly. This drives up prices, and supply has also become scarce.
Lately there has been some easing in this area, and price brakes on electricity and gas will also come into effect in the coming year. The prospects for the German economy have therefore “brightened up a bit,” the institute said. Gross domestic product (GDP) is expected to increase by 1.9 percent this year. In the coming year, the experts expect a slight increase of 0.3 percent – instead of a minus of 0.7 percent. Although economic output is likely to decline in the winter half-year, there are signs of “positive development” in the following quarters.
Inflation is likely to be 5.4 percent in the coming year – instead of the previously estimated 8.7 percent. The reason for this is the state subsidies for gas and electricity customers. The institute is therefore much more optimistic about the coming year than other experts. Although the Ifo and the Cologne Institute for Economic Research are also expecting a milder winter recession, they are assuming a decline in economic output for the coming year.
