Germany economy slated to contract in 2023, says EC

The German economy is set to shrink this year as high inflation and rising interest rates as Europe's biggest economy goes into a prolonged recession, the European Commission said on Monday.

In an interim quarterly update, the commission said the German economy would contract by 0.4% this year, compared with a prior forecast of 0.2% growth.

The 20-member eurozone's prospects were also revised down to 0.8% in 2023, down from 1.1% previously. Growth nest year was cut to to 1.3% from 1.6%.

“Latest data confirms that economic activity in the EU was subdued in the first half of 2023 on the back of the formidable shocks that the EU has endured,” the commission said. “Weakness in domestic demand, in particular consumption, shows that high and still increasing consumer prices for most goods and services are taking a heavier toll than expected in the spring forecast.

“This is despite declining energy prices and an exceptionally strong labour market, which has seen record low unemployment rates, continued expansion of employment and rising wages.”

It added that sharp cuts in bank lending showed the impact of higher interest rates were starting to work through the economy.

Inflation in the eurozone is expected to average 5.6% in 2023, compared with 5.8% in the spring. In the broader 27-member European Union, inflation is forecast to be 6.5% rather than 6.7%.

Reporting by Frank Prenesti for Sharecast.com