Berlin: According to a report released on Wednesday by the Ifo Institute for Economic Research, Germany is experiencing a winter recession as a result of the economy's ongoing contraction and the worsening cost-of-living crisis.
The report predicts that the gross domestic product (GDP) will decline by 0.2% in the first quarter. In the fourth quarter of 2022 compared to the previous three months, the economy shrank by 0.4%. Two consecutive quarters of contraction are required to qualify for a recession.
According to the Ifo, economic output will decrease by 0.1% in 2023, staying at a level that is similar to the previous year.
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The economy will recover over the course of the year after the first quarter saw a further 0.2% drop in gross domestic product. Rising real wages will help Germany's domestic economy starting at the middle of the year, according to Ifo economist Timo Wollmershäuser.
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Because of declining purchasing power and significantly higher financing costs, high inflation rates are currently having an effect on consumer spending and construction activity, according to the Ifo. As a result of easing supply constraints for intermediate products and sharp drops in energy prices, industrial activity is also rebounding.
The average inflation rate in 2023 will be 6.2%, which is only marginally less than in the previous year. According to the institute, the rate won't drop to 2.2% until the following year. Wollmershaeuser asserted that inflation had peaked but added that the sharp rise in wages was putting new pressure on prices.