The employer-friendly Institute for German Economics (IW Köln) is pessimistic about the coming year in view of the energy crisis. According to the forecast published on Wednesday, gross domestic product is expected to fall by about 0.75 percent. Compared to projections before the Russian invasion of Ukraine, real economic output will be nearly five percent lower by the end of 2023.
“The economy as a whole is facing a huge welfare loss,” says IW economics expert Michael Grömling. The NAV predicts particularly difficult times for the construction sector, which, unlike industry and the services sector, has to reckon with a deepening recession. A lack of materials and skilled labor, as well as an increasing interest in construction, are currently weighing on the industry.
Fall in consumer spending expected
So far, private consumption has proved to be the mainstay of the economy. That will probably change: economic researchers expect consumer spending to fall by 1.5 percent next year. Despite all the problems, the labor market is likely to be robust: the unemployment rate is expected to reach 5.3 percent this year and rise only slightly to 5.4 percent in 2023.
“The labor market is robust”
“The high energy prices have made life much more expensive for people and businesses and have slowed down the country,” says IW director Michael Hüther. It won’t get any better next year. “For better or for worse, we will have to get used to the terrible energy prices,” said Hüther. “Companies will invest and produce less as a result, their expectations are pessimistic. In any case, the labor market appears to be robust.”
How serious this crisis will be and how long it will last depends very much on the further development of the energy crisis, Grömling added: “The geopolitical danger looms above all, arising from the Russian offensive war in Ukraine.”
Source: Krone
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
