Germany: European Commission cuts growth forecast in 2023

Germany is set for a recession this year, with an expected 0.4% fall in economic activity, according to the EU's latest prediction.

European Commission cuts growth forecast in 2023

The German economy is expected to contract in 2023, the European Commission said on Monday.

Germany's gross domestic product is now forecast to shrink by 0.4% in 2023, compared to a previous prediction of 0.2% growth.

The Ukraine war and its toll on energy prices hit the manufacturing sector "particularly hard," the commission said.

Germany has ended its reliance on Russian gas, but energy prices remain high.

Weak demand keeps eurozone economy under pressure

The eurozone is expected to post a slower growth than expected at 0.8% in 2023, down from 1.1%. It is expected to post a 1.3% growth in 2024, down from 1.6%.

The 20-member bloc entered a recession in the first quarter of the year. The economic slowdown is a result of weakened demand due to high inflation rates, the commission said.

"Weakness in domestic demand, in particular consumption, shows that high and still increasing consumer prices for most goods and services are taking a heavier toll than expected," the commission said.

"Further weakening" was expected in the coming months as the economy faces "multiple headwinds," EU Economy Commissioner Paolo Gentiloni said at a news conference.

"The EU economy has suffered two massive shocks with the pandemic and Russia's unprovoked war in Ukraine," Commission Vice President Valdis Dombrovskis added.

Germany is the only major economy expected to shrink this year

Even though economic activity has been slowing in all major eurozone economies, Germany has been a particular source of weakness.

Germany's manufacturing and export-oriented economy has been hit by higher energy prices and slowing demand in China, a key trade partner.

Germany is the only major economy expected to shrink the year, the International Monetary Fund said in July.

Still, the state of the larger eurozone economy doesn't resemble a typical recession, because unemployment is at record lows and workers are earning more.

Source: DW