Inflation pressure is stubborn and affects the entire goods spectrum. As a result of higher prices, real wage costs are lower than they have been for a long time, and public sector revenues are bubbling up. Inflation is expected not to return to around 2 per cent before 2024.

Germany’s economy is expected to grow by 0.5 per cent this year and 1.4 per cent next year, as per the spring forecast by Kiel Institute. Inflation pressure is affecting the entire goods spectrum and is not expected to return to around 2 per cent until 2024. The country’s deficit is projected to shrink from 2.6 per cent in 2022 to 1.4 per cent in 2024.

“The economic compass is pointing upwards again, but the momentum remains subdued. The recent sharp drop in gas prices is initially providing little stimulus to the economy in this country; it is primarily easing the burden on the government budget, which now must step in with fewer subsidies as part of the so-called energy price brakes. As a result, lower import prices are replacing the stimulus from state energy subsidies, which has a similar effect on the macro economy,” commented Stefan Kooths, vice president and head of Economic Research at the Kiel Institute, on the current spring forecast for Germany.

While energy price momentum is weakening at the consumer level, prices of other goods are accelerating with an inflation rate recently beyond 7 per cent. Overall, inflation is estimated to be 5.4 per cent in 2023 and around 2 per cent in 2024.

Bubbling revenues and less spending on energy subsidies are taking pressure off public budgets. Their deficit in relation to nominal GDP is expected to shrink from 2.6 per cent in 2022 to 1.4 per cent in 2024. The debt level will decline from 66.4 per cent to 63.5 per cent during this period.

High energy prices and a subdued global economy are weighing on German exports. However, the recovery in the euro area and emerging markets in particular will have a stimulating effect from the middle of the year. In addition, companies in the manufacturing sector are benefiting from their high order backlogs, which they can now work off in view of easing supply bottlenecks. Overall, the Kiel Institute expects exports to grow by 0.5 per cent this year and 3.5 per cent next year.

Fibre2Fashion News Desk (NB)