25 Jan 2023, 13:22
Sören Amelang

German government no longer expects recession due to energy crisis

Clean Energy Wire

The German government no longer believes that the energy crisis will plunge Europe’s largest economy into recession this year. The government’s latest economic forecast said the economy is set to grow 0.2 percent in 2023, following relatively mild winter temperatures that have dispelled fears of a gas shortage. In October, the government had still forecast a 0.4 percent contraction. “The government has blown the whistle on the economic crisis,” Chancellor Olaf Scholz told parliament, adding that the "winter of discontent" expected by many had not materialised because his government managed to secure energy supplies.

“Consumers have made their contribution through major energy savings to help Germany get through the winter in good shape,” the economy ministry said. It added that speeding up the transformation towards a climate-neutral economy will be a policy focus this year, including the rollout of renewable energies. The ministry had already called the economy “gratifyingly resilient” earlier this month, when it pointed to “increasing signs that the economic slowdown in the winter months will be milder than previously expected,” after new data had shown that output stagnated at the end of last year, defying widespread expectations of a contraction. In its update, the government downgraded its growth forecast for next year to 1.8 from 2.3 percent. Last year, the economy grew 1.9 percent, according to provisional data. Inflation will slow to 6.0 percent in 2023 from 7.9 percent last year, the government said.

German business confidence had slumped during the summer as a result of the drastic energy price increases — resulting in fears of a severe recession, usually defined by two successive quarters of negative growth. But sentiment has improved significantly since then, following the government’s massive fiscal support programmes and a drop in energy prices due to mild weather. Still, German consumers will increasingly feel the effects of strong inflation and cut back consumption this year, which is set to weigh on the economy.  

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