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RWI Konjunkturberichte

Die wirtschaftliche Entwicklung im Inland: Inflationsschub lässt Produktion zurückgehen

Like the global economy as a whole, the German economy is under considerable pressure from high inflation, major uncertainties, especially in connection with the war in Ukraine, continuing disruptions to global supply chains and the economic effects of the Corona pandemic. As a result, seasonally adjusted gross domestic product (GDP) in the USA, the UK and China already declined in the second quarter, while still expanding slightly in Germany. The burdens on the German economy are likely to increase further in the coming months. The end of gas supplies from Russia increases the risk that rising gas demand in winter cannot be met by supply. This forecast assumes that increasing gas demand in the winter will cause prices to rise further, thus reinforcing the upward pressure on consumer prices. It is further assumed that household and business savings, together with a reduction in gas exports from Germany, are sufficient to ensure that there is no severe rationing of gas. Nonetheless, the negative impact of sharply rising gas prices is likely to cause production to fall in the second half of the year. We do not expect of a full-fledged recovery at the beginning of the coming year. Only when demand for gas falls in spring, and as the supply chain disturbances resolve is production likely to expand more significantly again. In 2024, GDP growth rates should again approach the growth of production potential. GDP is expected to expand by 1.1% this year. Next year we expect an increase of 0.8% and in 2024 an increase of 2.6%. Despite the decline in output, the labor market should remain relatively stable. In view of the shortage of skilled workers, which is clearly felt by many companies, the readiness to hire is still high. We expect the number of people in employment to rise slightly in the second half of 2022 and at the start of 2023. The unemployment rate is expected to rise from 5,1% to 5.5% in the third quarter of 2022 due to refugees from Ukraine and remain roughly at this level over the forecast period. The sharp rise in gas prices and the spillover through the production chains will cause inflation to pick up by the end of this year. However, when the heating season comes to an end in Spring, the decline in demand should yield some relief. The weakening economy is also likely to dampen price increases. The average inflation rate this year is expected to be 7.3%. An average inflation rate of 3.5% is expected for next year, followed by 1.6% for 2024. At just over EUR 45 billion, the fiscal deficit in 2022 is expected to be significantly lower than last year (EUR 134 billion), despite a number of revenue-reducing measures and one-time transfers to cushion rising gas prices. In the following years, the fiscal deficit is expected to increase slightly to a good EUR 49 billion in 2023. In 2024 it is expected to decrease to just under 28 billion Euros.

Schmidt, T., G. Barabas, N. Benner, B. Blagov, M. Dirks, D. Grozea-Helmenstein, N. Isaak, R. Jessen, F. Kirsch, P. Schacht and K. Weyerstraß (2022), Die wirtschaftliche Entwicklung im Inland: Inflationsschub lässt Produktion zurückgehen. RWI Konjunkturberichte, 73, 3, 5-51

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