German govt forecast projects recession

The German government now expects a recession, with the economy projected to contract in 2023 by 0.4% compared to last year in a new updated economic forecast, sources in government told dpa, confirming previous media reports.

A previous government estimate in the spring had forecast modest economic growth of 0.4%.

The updated forecast projects that prices will ease in 2024, however, with the inflation rate now projected to be 2.6% next year after averaging about 6% this year, sources told dpa.

According to government sources, the German government still expects economic growth to rebound in the future, with 1.3% growth next year and 1.5% in 2025.

Economy Minister Robert Habeck plans to present the autumn economic forecast on Wednesday.

The updated forecast cites as reasons for the recession high energy prices, high inflation and the weakening global economy, which has particularly harmed Germany's export-oriented economy.

The report sees energy prices stabilizing, albeit at a higher level, according to sources.

High inflation has also eroded the purchasing power of German consumers and led to greater uncertainty, which has harmed household spending.

Leading economic research institutes and bank economists also expect GDP to decline this year.