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30 Jan, 2023 06:00

Germany warns of ‘technical’ recession

The government has upgraded the economic outlook, but the finance minister says a contraction is still likely in the short term
Germany warns of ‘technical’ recession

The German economy is facing two consecutive quarters of contraction, Economy Minister Robert Habeck told a news conference last week at which he presented the newly released projections.

In the report, the country’s gross domestic product (GDP) outlook for 2023 was revised to 0.2% growth this year. Last fall, the government had forecast a 0.4% GDP decline for this year. The inflation outlook has also improved due to the recent drop in energy prices. Price growth for the year is now expected to come in at 6%, down from the previous forecast of 7%.

It’s still likely that we’ll have a technical recession,” Habeck warned, adding that while the country’s economy would avoid a sharp decline, the crisis is far from over.

The message is that we have made the crisis manageable… This does not mean that the crisis is over. But we were able to avert the worst scenarios,” he stated.

A technical recession is defined as two consecutive quarters of negative growth. Habeck, however, expects the situation to improve in the third and fourth quarters of this year.

Europe’s largest economy, Germany suffered from record inflation last year due to a surge in energy prices brought about by the drop in energy supplies from Russia amid Ukraine-related sanctions. Prices have largely stabilized thanks to accelerated efforts to diversify energy sources, an unusually mild winter, and gas storage facilities having been filled. This led to more positive, albeit still cautious, forecasts for the German economy in 2023.

However, many analysts still point out that Berlin could face problems in the summer, when it will have to refill gas storages for next winter with little or no Russian supplies available.

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