Germany’s Sluggish Economic Outlook: High Energy Prices and Domestic Demand Derail Recovery, According to Experts

Experts are warning that Germany’s economy is in a state of weakness, with domestic demand and high energy prices threatening to derail any potential recovery. The five economic research institutes in Germany have downgraded their GDP forecast, citing these factors as the main contributors to the slow growth. The report emphasized that consumers’ purchasing power is crucial to improving the economic outlook.

Germany’s economy has been struggling for some time, with structural factors and sluggish overall economic development highlighted as contributing to its weakness. Despite potential growth in the spring, experts suggest that the overall momentum may not be significant enough to make up for lost ground.

The lack of an increase in domestic demand is partly due to high gas and electricity prices, which have caused a loss of competitiveness for energy-intensive goods, which are a strength of Germany’s exports. Additionally, the government’s strict fiscal policy due to provisions for the constitutional debt brake has limited its ability to issue new debt.

Last year, Germany was the worst performing major economy in the world, and this year’s forecast predicts growth will pick up slightly to 1.4%. The “diagnosis” was a collaborative effort from five economic research institutes in Germany: DIW in Berlin, IfW in Kiel, IWH in Halle, RWI in Essen and Ifo in Munich.