German economy sinking in recession in 2023, predicts European Commission

livemint.com:

Russia-Ukraine crisis, German economy is expected to contract in 2023, predicted European Commission on Monday. The recent cut in forecast has come at a time when Euro's biggest economy is facing high inflation and the spill over effect of Russia-Ukraine war. Now, Germany's GDP is predicted to shrink by 0.4% in 2023 against 0.2% projected previously.

Notably, weak consumption and a decline in construction investment are expected to negatively impact growth. However, there has been an increment in investment in equipment, said European Commission. Despite weak external demand, net exports are expected to contribute positively to growth in 2023 due to falling imports.

EC also predicted Germany's GDP to to rebound by 1.1% in 2024, which is less than the 1.4% projection made in the spring. The cut in prediction is the result of a slowdown in the construction sector and slump in exports. The European Union's nation is also expected to make some improvement in terms of dealing with inflation, as EC predicted a reduction in Germany's headline inflation in 2023 from 6.4% to 8.7% in the previous year.

In the first half of 2023, energy and service price inflation fell more than expected, said the commission. Nonetheless, service inflation is set to remain elevated as wages rise. High service inflation, combined with food prices and core inflation, can further fuel headline inflation in 2023, said EC in its forecast.