The German economy is probably facing a recession, even if the outlook has recently improved somewhat. The likelihood of a gas shortage occurring in winter has decreased in recent weeks. In addition, the German government’s previous and planned fiscal relief packages are helping to cushion the economic impact of the crisis. Nevertheless, the economic outlook remains gloomy. Tthe energy crisis will probably not be over for some time yet. Inflation remains high and the European Central Bank’s interest rate hikes are likely to weigh somewhat on economic development in the coming year. The export-oriented German economy will also increasingly feel the impact of the slowdown in the global economy in the coming months.
In addition, the Russian war of aggression in Ukraine continues to have a high potential for escalation and the corona situation in China remains challenging despite less drastic lockdown measures. In any case, many German industrial companies are under permanent stress in view of the delays in global value chains to date, as well as the energy crisis and enormous inflation. New orders are declining and there are no signs of a recovery. After the currently still high order backlog has been worked off, there is a threat of a lull. Currently, companies are producing better again and capacity utilization is high. However, the mood remains tense and expectations for the coming year are still subdued due to the high level of uncertainty.
The service sector has so far been supported by robust private consumption, although the decline in purchasing power caused by high inflation is becoming increasingly noticeable. For many households, the financial situation is difficult. In addition, the savings built up to some extent during the pandemic are gradually being depleted. By contrast, private consumption is being supported by low unemployment and the planned curbs on gas and electricity prices.
Overall, the German economy is proving very resilient and will probably be able to avoid a deep recession. However, there is unfortunately little hope of a rapid and strong recovery from the current difficult situation.
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