High price increases – Germany is heading for a “winter recession”.

The economy, on the other hand, will only grow by 1.6 percent this year and contract by 0.3 percent next year. Because whether it’s a visit to a restaurant or a mobile phone – when everything becomes more expensive, economists expect that people will be more reluctant to consume. The companies don’t have this money – be it restaurant owners or mobile phone manufacturers.

The cut in gas supplies from Russia and the drastic price increases that followed “has ruined the post-Corona economic recovery,” Wollmershäuser said. “Only in 2024 do we expect normalization with 1.8 percent growth and 2.5 percent inflation.”

Number of corporate insolvencies rising again
The insolvency statistics show that times are getting tougher. After two months of declining trend, the number of corporate bankruptcies in Germany is increasing again. According to preliminary information from the Federal Statistical Office, 6.6 percent more default insolvencies were filed in August than in July. Statisticians pointed out on Monday that bankruptcy filings are often only included in the statistics with a delay.

Based on the latest data, the Leibniz Institute for Economic Research Halle (IWH) also assumes that the numbers will increase. “After a long period of low insolvency rates, a trend reversal has now set in,” IWH researcher Steffen Müller said last week. However, there is no sign of an impending bankruptcy wave.

Loss of purchasing power of approximately 3 percent
High inflation is causing private households’ real income and savings to melt and their purchasing power to decline. The planned third package of government aid is unlikely to make up for this for long.

“The loss of purchasing power, measured by the fall in real wages per capita by about 3 percent this year and next, is higher than at any time since the inception of the current national accounts in 1970,” Wollmershäuser said.

“Price shock” affects population
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” causes a permanent loss of wealth for large parts of the population. The institute’s economic barometer shows its third strongest downward movement after the financial crisis and the outbreak of the corona pandemic.

In light of the forecasts, the CDU chairman Friedrich Merz demanded a new industrial strategy from the federal government. “The federal government must be shaken by the economic situation described by the Ifo Institute in the coming months,” said Merz of the Funke media group. Sectors of the economy should be supported in a targeted manner. “Artificial intelligence, environmental technology, robotics or medical technology could become what the auto industry is today,” he added.

Falling energy prices likely from spring
The outlook for the Ifo Institute is not entirely gloomy: according to the institute, sufficient gas will be available in the winter. From the spring, energy prices are expected to fall again and as the year progresses, the price increase will gradually slow down. New collective agreements with rising wages will likely keep inflation high even excluding energy and food – but from mid-2023, real household incomes are also likely to rise again, “boosting consumer activity”.

And the Ifo Institute does not expect any serious effects on the labor market either. Employment growth will slow down only temporarily. The number of unemployed is expected to increase by 50,000 in the coming year. But this is mainly due to the Ukrainians, who are only gradually being integrated into the labor market.