Europe’s largest economy has had a turbulent year, but short-term forecasts by the German Council of Economic Experts have predicted a slight improvement is on the horizon.

German experts predict economic improvement

A report released on Wednesday by the German Council of Economic Experts (GCEE) says that the “short-term outlook for the German economy has improved slightly compared to autumn 2022”.

However, this slight improvement is tempered by “the loss of purchasing power due to inflation, tighter financing conditions and the slow recovery of foreign demand prevent a stronger upswing this year and next,” the report continued. In economics, an “upswing” refers to a sudden, economic recovery period.

According to the report, continuing inflation will limit this upswing. High inflation rates of 8,7 percent in February 2023 mean that “inflation will decline only gradually and remain elevated throughout the forecast horizon”. The GCEE expects an inflation rate of 6,6 percent during 2023 and for German GDP to grow by 0,2 percent.

Real wages increase will only come in 2024

While workers in Germany received an average pay rise of 3,4 percent in 2022, high inflation rates not seen since reunification mean that wages aren’t stretching as far as they did in the previous year, resulting in real wage losses of 4,1 percent during 2022.

Though the GCEE report explains that wages are expected to rise by 5,9 percent and 4,5 percent respectively in 2023 and 2024, higher labour costs and continuing consumer price hikes mean that real disposable income will only increase in 2024. Come 2024, the GCEE predicts that “wage increases will exceed the decreasing inflation rates, allowing for higher consumption expenditure”.

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