Higher prices, less growth: Germany is threatened with a severe loss of prosperity in 2023

Economic experts are looking to the coming year with concern. They expect GDP to fall by about 0.75 percent. Higher prices and delivery bottlenecks pose a problem for many industries. Only the labor market should be largely spared.

The employer-friendly Institute of German Economics (IW Köln) is pessimistic about the coming year in view of the energy crisis. According to a forecast, gross domestic product is expected to fall by around 0.75 percent. Compared to the forecasts before the Russian invasion of Ukraine, real economic output will be almost five percent lower at the end of 2023.

“The economy as a whole is faced with a huge loss of prosperity,” said IW economic expert Michael Grömling. The IW predicts difficult times for the construction sector in particular, which, unlike industry and the service sector, must reckon with an intensifying recession. A lack of materials and skilled workers as well as rising building interest are currently burdening the industry.

So far, private consumption has proved to be the mainstay of the economy. That is likely to change: economic researchers are assuming that consumer spending will fall by one and a half percent in the coming year. Despite all the problems, the labor market is likely to be robust: the unemployment rate is expected to be 5.3 percent in the current year and should only increase slightly to 5.4 percent in 2023.

“The high energy prices have made people’s and companies’ lives much more expensive and have slowed the country down,” said IW director Michael Hüther. It won’t get any better next year. “For better or for worse, we will have to get used to the horrendous energy prices,” said Hüther. “As a result, companies will invest and produce less, their expectations are pessimistic.” How severe this crisis will be and how long it will last depends heavily on the further development of the energy crisis, Grömling added: “The geopolitical danger looms above everything emanating from the Russian war of aggression in Ukraine.”

According to the IW, the global economy is also expected to weaken next year. The institute expects growth of only two percent. In 2021 it was around six percent compared to the previous year. Supply chains are still disrupted, and there is also a risk of production losses.