Germany is one of the world’s great industrial powers, the first in the European Union. The energy crisis is causing absolute chaos in an economy that already has a recession.
This promises to be a very, very hard winter.
Leading economic forecasting institutes issued a joint report Thursday predicting an unprecedented 7.9% contraction in the country’s Gross Domestic Product (GDP) should several risks materialize.
“The reduced gas supply from Russia (…) has increased the risk that remaining and winter storage volumes will not be sufficient to meet demand,” warned the IFO Munich, DIW Berlin, IfW Kiel, IWH Halle, and RWI Essen institutes.
Thus, in the most damaging and risky scenario, if the country fails to reduce its gas consumption and there is a supply shortage, the institutes estimate that the economy will fall by 7.9% in 2023, while in 2024, it will sink by another 4.2%.
Despite these warnings, the baseline scenario is different. The institutes expect economic growth of 1.4% this year, compared to the 2.5% forecast three months ago, while 2023 will see a 0.4% recession.
Within these baseline forecasts, the institutes consider the average inflation in Germany this year to be 8.4%.
In 2023, due to the energy situation, it will accelerate further to an average of 8.8%, but by 2024 it will fall back to 2.2%.
This was a big difference compared to June when the agencies were forecasting inflation of 6.8% this year and 3.3% in 2023.