The German economy, helped by its post-pandemic recovery, held up well in the first half of this year. But mainly because energy prices rise too much, Germany could enter a recession in the third quarter. It may not last until the end of the period when warming is needed, that is, until the spring of 2023. The results of the September survey of the economic institute ZEW show such a disappointing forecast. The economic expectations index for the next six months eased to -61.9 in September from -55.3 in August, hitting its lowest level since the great financial crisis in 2008, when it hit -63.9, compared with -63.9 points in August. 49.5 points on the coronavirus crisis in May 2020, they are clearly lower. The index of current conditions, which was slightly better during the summer months, fell even more sharply to -60.5 points in September from -47.6 points in August. And while the recession will intensify in the coming months, the assessment of current conditions could worsen further. At present, it is still far from the low point of previous crises such as the coronavirus pandemic.
In terms of inflation, the ZEW-based expectations index strengthened to -9.7 from -21.9 in August. While the gap between pessimists and optimists is narrowing, most of them still expect inflation to slow down from its current high levels over the next six months. We estimate that inflation is likely to exceed 10% yoy in the short term as some of the German government’s temporary measures, such as fuel tax cuts and special discounts on public transport tickets, expire. In addition, the transfer of wholesale natural gas prices to consumers is far from complete.
The decline in GDP is likely to last until the spring of 2023.
Finally, manufacturing and construction earnings expectations eased more and fell to lower levels in September than other industries, according to ZEW data. These industries are directly affected by the higher cost of energy and some other materials. The outlook for retail and consumer goods is also grim as households choke under the weight of their energy bills and are likely to avoid other than inelastic spending.
* Mr. Salomon Fiedler is an economist at Berenberg Bank.
Source: Kathimerini
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