German economy to shrink by 0.2% in 2023, say economic advisers

The German government's panel of independent economic advisers forecast Wednesday that Europe's biggest economy will shrink by 0.2% next year.

The five-member panel's report came after official figures late last month showed unexpected growth in the third quarter, thanks to private spending.

But a weak winter, with gross domestic product declining in the last months of the year and in the first three months of next year, is still widely expected. Two consecutive quarters of negative growth is one technical definition of recession, but the 19-country euro area has a body that also uses a broader set of data including employment numbers and depth of the economic decline to determine when a recession occurs.

 

The advisers' forecast of 1.7% growth this year and a decline of 0.2% in 2023 contrasts with a forecast at the end of March that German GDP would expand by 1.8% this year and 3.6% next year.

It's still more optimistic than a forecast by the government itself a month ago, which foresaw growth of 1.4% this year and a decline of 0.4% next year.

Inflation has increased to 10.4% in October as energy prices remain high, and the problem isn't expected to go away soon. Wednesday's report predicted an average annual inflation rate next year of 7.4%, a little below this year's 8%.

Officials say Germany is well-placed to get through the winter with sufficient energy after Russia cut off natural gas supplies but stress that it will still need to conserve the fuel that heats homes, powers factories and generates electricity.

Federal and state officials agreed last week on the main details of a plan to provide up to 200 billion euros (dollars) in subsidies to households and businesses to ease the strain of high gas, electricity and heating prices through 2024.