Joint Economic Forecast for the German Economy #2-2023 – Return of Purchasing Power – Political Uncertainty High

The study contains a detailed short-term forecast up to 2025 as well as a medium-term projection of economic development up to 2028. The main topic deals with investment and potential growth in Germany against the background of decarbonization. Germany has been in a downturn for more than a year. The jump in energy prices in 2022 has put an abrupt end to the recovery from the pandemic. However, wages have since picked up due to inflation, energy prices have fallen, and exporters have passed on some of the higher costs, so purchasing power is returning. As a result, the downturn should ease by the end of the year and the economy's capacity utilization rate should rise again as the year progresses. All in all, gross domestic product will fall by 0.6 percent in 2023. The institutes are thus revising their forecast from spring 2023 sharply downward by 0.9 percentage points. The main reason for this is that industry and consumption are recovering more slowly than had been forecast in the spring. For 2024, the forecast of 1.3 percent is only 0.2 percentage points lower than in the spring. Thereafter, it will become apparent that potential growth will shrink significantly in the medium term due to the shrinking workforce. Economic policy should improve location quality and contain political uncertainty, also in the context of the energy transition.