Brussels predicts a recession in Germany in 2023

There European Commission reduced its economic growth forecasts for the euro zone in 2023 and 2024 by 0.3 points, to 0.8% and 1.3% respectively, due in particular to the difficulties of Germany, weighed down by its industry. Brussels is now counting on a decline in gross domestic product (GDP) of 0.4% this year in Europe’s largest economy, before a rebound of 1.1% next year, against +0.2% and +1.4 % expected so far.

Germany suffers from the weakness of its exports and its vast industrial sector, its traditional strengths. Confidence indicators in industry have been falling since the start of the year, particularly in energy-intensive sectors, “hard hit by energy price shock» linked to the war in Ukraine, underlined the European executive in a report published Monday.

Overall, however, growth continues in the eurozone and the EU, but at a slower pace than expected. For all 27 member countries, Brussels is now counting on 0.8% growth in 2023 and 1.4% in 2024, respectively 0.2 points and 0.3 points less compared to the latest forecasts published on 15 may. However, France should do better than expected this year, thanks to a strong rebound in the spring. The growth of Europe’s second largest economy has been revised upwards to 1% this year (+0.3 points). Same thing for Spain, whose growth is now expected at 2.2% (+0.3 points). Inflation continues to slow. Brussels now expects an average increase in consumer prices of 5.6% in 2023 (-0.2 points, compared to the latest forecasts in May) and 2.9% in 2024 (+0.1 points), according to a press release published Monday.

Read also“France, Germany better”: the astonishing compliment from the German press

“Multiple headwinds”

“The multiple headwinds facing our economies this year have resulted in weaker growth dynamics than we anticipated in the spring», recognized the Commissioner for the Economy Paolo Gentiloni, highlighting the impact of the war in Ukraine. “Russia’s brutal war against Ukraine continues to cause not only human suffering, but also economic disruption“, he highlighted. The European Commission notes that “economic activity in the EU was weak during the first half of the year“, particularly in the consumer sector, a sign that high prices “weigh more than expected» in the spring forecasts, despite the exceptional strength of the labor market, which recorded record unemployment rates.

The Commission also emphasizes the impact of interest rate increases decided by the ECB. The strong monetary tightening implemented to combat inflation results in a “clear slowdown in the granting of bank loans”, mechanically reducing the investment capacities of businesses and households. The latest indicatorssuggest a slowdown in economic activity during the summer and in the months to come, with persistent weakness in industry and a loss of speed in services, despite a strong tourist season in many regions of Europe», summarizes the Brussels executive.

Due to weak performance of China, the European economy cannot count on significant support from exports either. The continued slowdown in inflation and the resilience of the job market should, however, enable a rebound in 2024.