BERLIN – Germany's economic forecasts for this year are mixed. The recession is not expected to be as deep as predicted, and inflation is expected to remain at a high level, around 7%, throughout the year.

As Economy Minister Robert Habeck predicts, the country has secured its energy supply even without Russian energy sources, but the biggest problem for the German economy remains the shortage of skilled labor and high energy costs.

The recovery of the German economy after the restrictions due to the pandemic was abruptly interrupted by the war in Ukraine. The German government reacted relatively quickly to the energy crisis – shortages of energy sources and high prices – and above all generously with 200 billion in aid to companies and households, which, according to our interlocutor, Stefan Kooths, responsible for economic forecasts at the Economic Institute in Kiel, which also advises the German government, is too broad and poorly targeted.

“It is too broad and also supports private individuals who do not need that assistance, which means it increases purchasing power in part of the private sector, causing inflation. We should be more targeted in order to remain in stable waters.”

Germany faces a period of stagnation; next year, especially in the second half, economic growth is expected to be greater than only 0.3% on an annual basis, and only one percent higher in 2024, and for that German policy will have to do a lot of homework, Kooths estimates. “Above all, the energy crisis should be addressed differently, first of all by strengthening supply, we need more energy sources than before, this also includes long-term contracts for liquefied gas terminals, it must not be allowed to close any nuclear power plants, but on the contrary, reconsider and reconnect all 6 nuclear power plants to the grid.”

Most Germans also support extending the deadline for nuclear power plants. The German Ministry of Finance, led by Christian Lindner of the liberal Free Democrats, is preparing a strategy to increase Germany's competitiveness, which also includes extending the operation of three nuclear power plants, as well as tax relief for companies, a proposal to postpone the increase in CO2 prices in 2024 and abolish the ban on so-called fracking, while the Greens in the government do not support the last two proposals. The outlook for the first half of 2023 is not good, but already in the second half they predict less uncertainty, significant wage growth and a reduction in inflation.

Source: seebiz.eu