The German economy has shown resilience over the past year thanks to a firm policy response and a mild winter, but economic growth will remain modest for the foreseeable future, according to a report published on Tuesday by the International Monetary Fund, Reuters and Agerpres reported. .

The tightening of financial conditions and the energy price shock have begun to affect forecasts for the near future, the IMF warns in its report on Germany. The International Financial Institution forecasts near-zero German GDP growth in 2023 before a gradual recovery of 1-2% between 2024 and 2026.

In the long term, Germany’s average GDP growth will fall below 1% due to an aging population and a lack of significant growth in productivity and the labor force.

While core inflation has fallen from record levels last year, the IMF believes “the priority for the near term is to sustain disinflation with moderate fiscal tightening in 2023,” the report said.

In the medium term, Germany needs to create more fiscal space to invest in its future, says the IMF, which expects Germany’s deficit to shrink to around 0.5% of GDP by 2027 after support measures are lifted following energy price hikes.

The debt brake included in the German Constitution limits the budget deficit to 0.35% of GDP.

German fiscal austerity is known from the past

The German parliament suspended the debt brake resolution for the period 2020-2022 to allow for increased spending in the context of the consequences of the pandemic and the war in Ukraine.

During these years, Germany created numerous off-budget funds, which amounted to approximately 9% of GDP.

The 2023 budget was originally drawn up under the constitutional debt clause, but was suspended again by the Bundestag in October to allow a 200 billion euro support package to be passed to protect German companies and households.

“Germany should consider adjusting the rules on the debt brake to better align with EU fiscal rules and reduce its dependence on off-budget funds,” the IMF said.