The Ifo Institute expects inflation rates to continue to rise and economic output to shrink in Germany. For this year, economists expect an inflation rate of 8.1 percent and next year’s 9.3 percent. According to Ifo’s economic forecast presented in Berlin on Monday, the economy will grow by just 1.6% this year and even shrink by 0.3% next year.
“We are entering a winter recession,” said Timo Wollmershäuser, head of economic research at Ifo. The cut in gas supplies from Russia and the drastic price rises that followed “spoiled the economic recovery after the Corona,” he said. “Only in 2024 do we expect normalization with 1.8% growth and 2.5% inflation.”
Power providers visibly adjusted their electricity and gas prices to high procurement costs early next year. This will even raise the inflation rate to around 11% in the first quarter. As a result, real household incomes have dropped sharply and purchasing power has dropped noticeably, according to economic researchers. The relief package is unlikely to make up for this by far. “The loss of purchasing power, as measured by the decline in real wages per capita by about 3% this year and next, is greater than at any time since today’s national accounts began in 1970,” Wollmershäuser said.
However, the Ifo Institute does not expect serious effects on the labor market. The rise in employment will only temporarily slow down. The number of unemployed is expected to increase by 50,000 next year. But this is mainly due to Ukrainians, who are gradually being integrated into the labor market.