Saturday, January 28, 2023

Berlin, cautious in view of the expectation of avoiding recession with minimal growth

The German government forecasts for 2023 a growth of the economy of 0.2%, a minimum margin but that for the executive of Chancellor Olaf Scholz already represents a relief, albeit cautious, months after having predicted a recession.

“The worst scenario has not occurred and the economy and markets are showing positive dynamics,” said the Minister of Economy and Climate Protection, the green Robert Habeck, detailing the new estimates from his team.

The positive effects will begin to be reflected from spring, added the minister, but the situation will remain “volatile” throughout the year and conditional on the performance of investments, especially in currently “complex” sectors, such as construction.

The energy crisis precipitated by the war in Ukraine and the need to rapidly seek alternatives to Russian supplies will slow down overall, according to his calculations.

In its autumn projection, the Government was still starting from a contraction of the gross domestic product (GDP) of 0.4%, recalled the minister, with the rank of vice-chancellor in the tripartite between social democrats, greens and liberals of Scholz.

“We have acted step by step to counteract the effects of the energy crisis, on the one hand, and inflation, on the other,” Habeck explained.

The current prospects allow us to trust that “the feared contraction will not occur” or that, if it does, “it will be for a shorter and lighter period than previously calculated,” he added, to insist that said forecasts still marked a margin ” very fragile” and should be taken with caution.

In general terms, the Ministry of Economy already underlined in its previous statement the “capacity for adaptation and resistance” shown by the country’s economy.

Habeck added in his appearance before the media that this change “in a positive direction” compared to the autumn estimates was due to the “own dynamics of the markets”, not to “extraordinary” interventions.

The annual economic report for 2023, entitled “Renew prosperity”, reveals, according to the Ministry, “how Germany has defended itself in the face of the crisis” and how “it has shown strength in view of the Russian war of aggression against Ukraine and the energy crisis associated”.

The official prognosis had already been somewhat advanced by Chancellor Olaf Scholz, who at the World Economic Forum in Davos (Switzerland) was “convinced” that Germany would overcome the recession that had been predicted for the leading European economic power by both the Executive in Berlin as the main German economic institutes.

According to the Ministry, “the coherent action of the government, in particular, has made the crisis manageable”, and to the resistance of the economy has been added that “consumers have also contributed by saving a lot of energy so that Germany can overcome the winter well” .

“Thanks to these efforts, the economic prospects for 2023 are better than expected even in the autumn projection,” he points out, although he stresses that “this positive trend must now be reinforced in terms of economic policy.”

At the same time, inflation decreases; although it will remain high in 2023, the trend reversal has begun and after 7.9% in 2022, the index is expected to decline to 6.0% this year.

Businesses are also recovering confidence and the state of mind has improved remarkably.

Companies invest in modern facilities and machinery: thus, according to the projection, investments in capital goods will increase by 3.3% in 2023, after 2.5% the previous year.

In addition to the projection, the annual economic report contains key issues of the government’s economic and financial policy, such as ensuring energy supply and accelerating transformation, strengthening competitiveness and establishing transformative supply policies, as well as strengthening strategic sovereignty and redesigning the trade policy.

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