German and Russian economy will shrink in 2023, experts say

The German economy is expected to shrink this year, falling behind other major economies, with only Russia doing worse, according to the forecast reports of two major economic research institutes on Thursday.

Economists previously predicted a slight growth in GDP in 2023, according to the original forecasts by the German Institute for Economic Research (DIW) and the Kiel Institute for the World Economy (Ifw). However, the DIW now expects the economy to shrink by 0.2% while the IfW forecasts a decline of 0.3% as both institutes presented their updated reports on Thursday.

“Germany is among the worst performers compared to other large [economies],” Geraldine Dany-Knedlik, the DIW’s co-head of macroeconomics and forecasting, said on Thursday.

The DIW projection compared Germany’s expected performance to 16 other economies, including some of the G7 countries and major emerging countries such as India and Brazil.

Despite modest growth projections for most industrialised countries, none will do worse than Germany. Only Russia’s economy is predicted to shrink by 1.1%.

This aligns with the findings of the EU Commission’s spring forecasts, which saw Germany among the five worst-performing EU economies for 2023. However, the Commission still forecast mild growth for Germany this year.

Regarding the reasons for the decline, both research institutes point to the war and its economic consequences.

“The German economy is, in fact, doing well considering the heavy crisis and Russia’s delivery stop for oil and gas and thus confirms that it can adapt quickly to new circumstances,” Moritz Schularick, the president of the IfW, pointed out.

“Record inflation, in particular has affected the economy and been a burden for many people,” Timm Bönke, the DIW’s co-head of macroeconomics, explained. He sees “a reduction in price rises, increasing real income, and higher consumption” as key factors for Germany’s economic recovery.

Both the DIW and the IfW expect Germany to bounce back again in 2024, with growth rates above 1%.

(Nick Alipour | EURACTIV.de)