German economic institutes cut 2023 GDP forecast

German economic institutes cut 2023 GDP forecast
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BERLIN (Reuters) -Two of Germany’s leading economic institutes lowered their forecast for Europe’s largest economy next year, predicting high energy prices caused by the Ukraine war would take their toll.

The IfW institute in Kiel predicted on Thursday that the economy would contract by 0.7% in 2023, a U-turn from its June forecast foreseeing growth of 3.3%.

The RWI institute in Essen lowered its 2023 forecast but still predicted growth of 0.8% instead of a previous 2.7%.

For the current year, IfW and RWI still expect the German economy to grow, but not as strongly as previously thought, lowering their forecasts to 1.4% and 1.1%, respectively.

IfW and RWI, part of a group that advises the government, also raised inflation forecasts for this year, citing the rise in energy prices.

The IfW said inflation would reach 8.0% this year and 8.7% next year, while the RWI predicted 2022 inflation at 7.3% and 2023 inflation at 3.5%.

“The recent price jumps for electricity and gas will noticeably reduce the purchasing power of private households and lead to a decline in private consumer spending,” IfW said.

The German government on Sunday unveiled plans to spend 65 billion euros ($65 billion) on shielding consumers and businesses from the effects of soaring inflation. The latest package brings to 95 billion euros the amount allocated to inflation-busting since the Ukraine war began.

($1 = 0.9999 euros)

Source: Reuters