The German economy will gradually recover in the second half of this year, according to the KPMG Global Economic Outlook report released recently. Inflation rate will fall in the medium term, while labour market will remain robust and stabilise private consumption, it said.

The war in Ukraine, ongoing supply chain disruptions, and the energy crisis weighed on the German economy last year. The country’s gross domestic product (GDP) grew by 1.8 per cent, thanks in particular to private consumption, which grew by 4.3 per cent.

Consumers spent almost as much as before the COVID-19 pandemic with people making up for what they could not do during the pandemic. Despite the 0.4 per cent contraction in GDP in the fourth quarter (Q4) 2022, the slowdown in economic momentum is likely to be shorter and milder than originally expected, the report said.

Relief packages from the German government, particularly in the form of the gas and electricity price brakes, could save the German economy from a recession in 2023, it noted. These subsidies will also have a dampening effect on the rise in consumer prices.

After reaching its lowest point in September 2022, business sentiment is brightening again, the KPMG report noted. Companies have been more upbeat about both their business situation and expectations in recent months.

This is on the one hand due to the lower producer prices in the manufacturing sector, which have a positive effect for the industry in purchasing.

On the other hand, the energy price brakes announced and imposed at the turn of the year have provided some reassurance for companies. The Russia-Ukraine war and the associated explosion in energy prices are estimated to have cost Germany around 2.5 per cent, or €100 billion, in economic output in 2022.

Germany is economically more affected by the crisis than other countries due to its high dependence on Russian energy, a high share of energy-intensive industry and greater reliance on exports and global supply chains, the report said.

This is also reflected in the foreign trade figures. Due to the sharp rise in energy prices, Germany’s trade surplus was lower last year than at any time since the turn of the millennium. Although more goods were again exported than imported, the foreign trade balance halved.

Recently lower prices for energy, a labour market that remains stable and the possibility that a recession in Germany could be avoided, are slowly bringing optimism back, it said.

The inflation rate, however, remains high, and second-round effects from strong wage and salary increases are foreseeable, it said.

Overall, KPMG expects economic activity to gradually stabilise in 2023 and continue to grow in 2024, the report added.

Fibre2Fashion News Desk (DS)

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