Since gas has been scarce, people have lost purchasing power like they have not for decades. For the cold season, economists expect a shrinking economy – and the first glimmers of hope in spring.
Heating, electricity, shopping – consumers and companies in Germany are facing a hard winter due to high prices. Experts expect economic output to shrink. “We are going into a winter recession,” said economic researcher Timo Wollmershäuser from the Munich Ifo Institute on Monday.
According to the Munich economists, the reason for this is the continuing rise in prices. The inflation rate will increase from 8.1 percent in the current year to 9.3 percent in the coming year. The economy, on the other hand, will only grow by 1.6 percent this year and will shrink by 0.3 percent in the coming year.
Because whether it’s a visit to a restaurant or a mobile phone – if everything gets more expensive, economists expect people to be more reluctant to consume. The companies then lack this money – be it restaurant operators or mobile phone manufacturers.
The cut in gas supplies from Russia and the subsequent drastic price increases “have spoiled the economic recovery after Corona,” said Wollmershäuser. “Not until 2024 do we expect normalization with 1.8 percent growth and 2.5 percent inflation.”
6.6 percent more standard insolvencies
The insolvency statistics show that times are getting tougher. After two months of downward trend, the number of company bankruptcies in Germany is increasing again. According to preliminary information from the Federal Statistical Office, 6.6 percent more standard insolvencies were filed in August than in July. The statisticians pointed out on Monday that the bankruptcy applications are often only included in the statistics with a time delay.
The Leibniz Institute for Economic Research Halle (IWH) also assumes that the numbers will increase based on the latest data. “After a long period of low insolvency figures, a trend reversal has now set in,” explained IWH researcher Steffen Müller last week. However, one cannot speak of an imminent wave of bankruptcies.
“The high rates of inflation are causing the real income of private households and their savings to melt away and reduce their purchasing power,” according to the economic researchers. The planned third package of government relief is unlikely to make up for this by far.
“The loss of purchasing power, measured by the decline in real per capita wages by around 3 percent this year and next, is higher than at any time since today’s national accounts began in 1970,” said Wollmershäuser.
Permanent loss of wealth
The head of the German Institute for Economic Research (DIW), Marcel Fratzscher, had already promised a downward spiral with one or two years of poor economic performance. The “price shock” is causing a permanent loss of prosperity in large parts of the population. The institute’s economic barometer shows its third strongest downward swing after the financial crisis and the outbreak of the corona pandemic.
In view of the forecasts, the CDU chairman Friedrich Merz demanded a new industrial strategy from the federal government. “The federal government must be shaken up by the economic situation that the Ifo Institute is describing for the next few months,” said Merz of the Funke media group. Economic sectors must be specifically supported. “Artificial intelligence, environmental technology, robotics or medical technology can become what the auto industry is today,” he added.
But the Ifo Institute’s outlook is not entirely bleak: according to the institute, there will be enough gas available in winter. From spring onwards, energy prices are expected to fall again, and as the year progresses the rise in prices will gradually slow down. Due to new collective agreements with rising wages, the inflation rate is likely to remain high even without including energy and food – but real household incomes are also likely to rise again from mid-2023, “which will stimulate consumer activity”.
And the Ifo Institute does not expect any serious effects on the labor market either. The increase in employment will only slow down temporarily. The number of unemployed is likely to rise by 50,000 in the coming year. But that is mainly due to Ukrainians, who are only gradually being integrated into the labor market.
Source: Stern
Jane Stock is a technology author, who has written for 24 Hours World. She writes about the latest in technology news and trends, and is always on the lookout for new and innovative ways to improve his audience’s experience.
