BERLIN, Nov 15 (Reuters) – The German economy is expected to contract 0.3% this year, as a loss of purchasing power due to high inflation and tight financial conditions weighs on consumption and investment, the European Commission said on Wednesday.
By comparison, the German government expects the economy to contract by 0.4% in 2023.
The euro zone’s biggest economy faces a decade of high interest rates, high inflation and weak international trade. A decline in industrial production and a contraction in the construction sector are taking their toll.
From next year, domestic demand will improve, driven by rising real wages. Along with recovering foreign demand, this is expected to support gross domestic product (GDP) growth of 0.8% in 2024 and 1.2% in 2025, according to economic forecasts carried out by the Commission in autumn 2023.
The commission’s forecast is less optimistic than the German government’s, which expects the German economy to rebound in 2024 and 2025, growing by 1.3% and 1.5% respectively.
According to Commission projections, for the whole of 2023, harmonized inflation is expected to slow to 6.2%.
Inflation, though low, is expected to continue to decline, to 3.1% in 2024 and 2.2% in 2025.
According to the commission, German public finances have begun to improve with a gradual reduction in the public deficit and debt/GDP ratio.
In 2023, Germany’s general deficit is expected to fall to 2.2% of GDP from 2.5% in 2022 as anti-pandemic measures are phased out.
According to the Commission’s projections, the public deficit will fall to 1.6% of GDP by 2024.
(Reporting by Maria Martinez; Editing by Miranda Murray and Sharon Singleton; Editing in Spanish by Flora Gomez)
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