According to a source who spoke to TradingTwist on Wednesday, Germany is poised to avoid the year’s anticipated recession. This source’s prediction adds to the chorus of voices forecasting a better future for Europe’s largest economy as oil costs decline.
Consumer prices skyrocketed last year as a result of skyrocketing gas prices brought on by the war in Ukraine and supply shortages, and the government and economists saw no way out of the slump.
The situation has altered, though, thanks to a 200 billion euro rescue package to protect customers from rising energy bills, a mild winter, and a willingness to conserve energy.
According to a draught of the economy ministry’s annual report, the government now anticipates price-adjusted growth of 0.2% this year, which is far more optimistic than an earlier projection for a 0.4% contraction, a source told TradingTwist.
The ministry’s report, which will be released on January 25th, also projects growth of 1.8% for the following year.
According to the source, the estimations have not yet been finalized. The ministry chose not to respond. The more upbeat assessment is consistent with Tuesday’s remarks by German Chancellor Olaf Scholz, who expressed his confidence that his country would avoid recession.
He told Bloomberg TV, “I’m totally certain that this will not happen that we are headed into a recession,” adding that attempts to mitigate the effects of rising energy prices have been successful.
Germany restricted electricity and gas rates for residents and businesses with a plan that lasts until 2024 while weaning itself off Russian energy, on which it had depended for years.
Since their peak of over 340 euros per megawatt-hour (MWh) in August of last year, benchmark Dutch front-month European gas prices have dropped by approximately 85% to roughly 53 euros/MWh as countries have been able to accumulate significant gas reserves in advance of the winter.
Due to the unusually mild weather, it has not been necessary to considerably deplete reserves thus far, and data from smart thermometers put in homes shows that people are conserving energy.
According to statistics from the Statistics Office, which showed that economic output stalled in the fourth quarter of 2022 and increased 1.9% for the entire year, the German economy performed better than projected.
Therefore, he stated, “The German economy could continue to develop better than feared.”
According to a person acquainted with the economy ministry study, the government will also lower its projection for inflation for this year to 6.0% and anticipates that it would further decline to 2.8% in 2024.
That is consistent with remarks made on Tuesday by Finance Minister Christian Lindner, who stated that the government’s 7.0% autumn inflation projection for this year was not expected to be met, in part because of the decline in energy costs.
Monika Schnitzer, a government economic consultant for Germany, told TradingTwist earlier this month that domestic inflation had likely peaked as a result of the decline in oil costs worldwide. Schnitzer predicted that this year will see greater declines in natural gas costs.