BERLIN (Reuters) – Germany’s economy will contract next year as a dramatic rise in energy costs due to the war in Ukraine extinguishes the chances of recovery after pandemic-related lockdowns, the Ifo institute said on Monday.
The institute reversed its June forecast of 3.7% growth for 2023 and now predicts that Europe’s largest economy will contract by 0.3%. At the same time, it bumped up its forecast for 2023 inflation by 6 percentage points to 9.3%.
For 2022, Ifo lowered its growth forecast to 1.6% from 2.5% and raised its inflation forecast to 8.1% from 6.8%.
“These are unusually large changes in such a short period of time,” said Timo Wollmershaeuser, head of Ifo’s economic forecasts.
Price increases should grow less dramatically over the course of the coming year – calculated under the assumption that there will be enough gas in winter – and energy prices will begin sinking in spring 2023 at the latest, said the institute.
For 2024, the institute predicts economic growth of 1.8% and inflation at 2.5%.
The German economy grew slightly in the second quarter, propped up by household and government spending.
(Reporting by Rene Wagner and Miranda Murray, editing by Rachel More)
