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Economy and Finance

Economic forecast for Germany

The latest macroeconomic forecast for Germany. 

In the first quarter of 2022 real GDP edged up by 0.2%, thanks to a rebound in construction activity. Private consumption was weak due to pandemic-related restrictions on service activities, and exports declined due to supply bottlenecks and the onset of the Russian war of aggression against Ukraine.

Last update : Summer 2022 Economic Forecast (14/07/2022)

Indicators2020202120222023
GDP growth (%, yoy)-4,62,91,41,3
Inflation (%, yoy)0,43,27,94,8

Since April, the stringency of pandemic containment measures has been progressively eased, enabling the reopening of contact-intensive services. This is expected to have boosted consumer spending in the second quarter. Still, as trade disruptions were aggravated by the war, real GDP is expected to have stagnated in the second quarter.

In the third quarter GDP is expected to grow by 0.2%, as soft containment measures and recourse to accumulated savings support private consumption growth, helped by a robust labour market.

However, overall growth is expected to remain subdued. Households’ purchasing power is dented by soaring inflation. While manufacturers’ order backlogs remain significant, their unwinding is likely to be held back by lingering supply bottlenecks and ever increasing costs. Against this background and amid high uncertainty regarding energy supplies, investment growth is likely to be restrained in the coming quarters.

On an annual basis, real GDP is expected to increase by 1.4% in 2022 and by 1.3% in 2023. For 2023, this is a significant downward revision compared to the Spring Forecast, due to the deterioration of the outlook for global trade and the loss of purchasing power, which weigh on business and consumer confidence.

Given Germany’s relatively high dependence on Russian gas, a sudden stop in deliveries would constitute a significant downside risk to the outlook as it may heavily affect activity in key industry sectors.

HICP inflation reached 8.7% in May, a rate that is comparable to that of the high increases in consumer prices in the 1970’s. Alongside surging energy prices, inflation has become more pronounced across all other consumption categories. In June, a temporary reduction of prices for local public transport helped slow inflation somewhat (to 8.2%), though the effect will be undone upon expiry of the measure later in the year. Despite a tightening labour market, wage growth and wage settlements remain moderate. Still, an increase in the minimum wage later this year is expected to temporarily push up service price inflation. In 2022, inflation is forecast to average 7.9%. The lingering pass-through of higher cost of labour, energy and other commodities and supplies are set to keep the average annual inflation rate close to 5% in 2023.