The recession in Germany will be more moderate than expected: Ifo

The recession in Germany it will be more moderate than expected, and the largest economy in Europe could rather practically stagnate in 2023, according to an updated forecast from the Ifo economic institute released on Wednesday.

German Gross Domestic Product (GDP) should contract 0.1% in 2023, less than the 0.3% originally forecast, Ifo said.

Rising energy prices after the Russian war against Ukraine led to an inflationary acceleration that hit German consumers and industries, dependent on exports and imports.

But the inflation it should fall from 7.8% in 2022 to 6.4% in 2023 when government measures to contain prices take effect.

Also, demand for goods in the manufacturing sector remains strong, “with order books well filled,” Ifo said.

Timo Wollermershaeuser, Ifo’s head of forecasts, said German output grew 0.4% in the third quarter, higher than expected.

The next two quarters could show contractions, but “after that it will start to recover,” Wollermershaeuser said, predicting growth of 1.6% in 2024.

The German government presented a support package of 200 billion euros (about 210 million dollars) to mitigate the impact of the energy crisis, including a cap on gas prices for businesses and homes.