The German economy is already in recession as a result of the energy crisis, high inflation rates and shrinking global trade, the country’s Institute for Economic Research (DIW Berlin) said on Wednesday.
“Unfortunately there is no light at the end of the tunnel at the moment,” said DIW economic expert Guido Baldi, who estimates the gross domestic product (GDP) of Europe’s largest economy will shrink by approximately five percent in 2022 and 2023.
Bank of England Announces Bond Purchases To Calm Markets
The monthly economic barometer in September remained below the 100-point threshold that stands for average growth in Germany. At 79.8 points, the rate showed little change from the August level, according to DIW Berlin.
“Enormous increases in energy prices are leading to dramatic losses in purchasing power and threaten to make production unprofitable in many companies,” DIW Berlin said.
It said the Russia-Ukraine conflict and the COVID-19 pandemic were an “additional burden on the export-oriented German economy.”
Germany’s inflation rate rose to a record 7.9 percent in August, according to the Federal Statistical Office (Destatis). This was driven by soaring prices for energy products which surged 35.6 percent year on year.
The energy crisis is becoming the biggest problem for Germany’s industry. “For some companies, the question may soon arise as to whether it is currently worthwhile to maintain production at all,” warned DIW economic expert Laura Pagenhardt.
At the same time, both domestic and international orders have started to decline. “At least the hitherto stubborn bottlenecks in the international supply chains appear to be gradually easing, allowing the still high order backlog to be processed more efficiently,” DIW Berlin said.
In July order backlogs in Germany’s manufacturing sector were up by 12.6 percent year on year, as unfilled orders reached the highest level since records began in 2015, according to the Federal Statistical Office (Destatis).