Germany is preparing to enter recession this winter (northern hemisphere), due to the strong impact of the energy crisis on homes and businesses, according to forecasts by the IFO institute and the Central Bank.
“Russia’s reductions in gas supplies over the summer and the drastic price increases they have caused are wreaking havoc on the economy,” summarized this Monday (12) the IFO institute, one of the most influential in the main European economy.
Russia only resumes full gas supply to Europe after sanctions end
The agency cut its June growth forecast by four percentage points, and now projects a 0.3% drop in GDP in 2023. It is the first German institute to predict a drop in GDP next year.
The IFO predicts a technical recession in the first quarter of 2023, with GDP falling 0.4%, after falling 0.2% in the fourth quarter of 2022.
On Sunday, German Central Bank Governor Joachim Nagel released a similar forecast and declared that a recession was “possible” as early as later this year and early 2023. “There are a number of elements” that point to this hypothesis, he said on public radio.
According to the IFO, the situation could “normalize” in 2024 with a “growth of 1.8%”.
“We are heading towards a winter recession”, summarized Timo Wollmershäuser, director of conjunctural studies at the institute.
As for inflation, it is expected to reach 9.3% next year, after reaching 8.1% in 2022, according to the agency. The Bundesbank expects inflation to rise at “more than 10%” in December and at “more than 6%” in 2023.
The Russian invasion of Ukraine and the sanctions imposed by the European Union on Moscow caused Russian giant Gazprom to drastically reduce its gas deliveries to Germany. The company even cut off supply completely in September.
Germany, heavily dependent on Russian gas, now has to look to other, much more expensive suppliers. In addition, it will keep two nuclear plants on standby until 2023, in a route change deemed necessary to deal with a potential energy shortage.
This situation boosted the price of gas and electricity in the country, which was already very high in full economic recovery after the covid-19 pandemic. Last Friday, Gazprom announced that the Nord Stream pipeline, vital for Europe’s supply, would keep taps closed due to a turbine problem.