German economy expected to contract slightly in 2023

© Reuters. People walk through the Mall of Berlin shopping centre during its opening night in Berlin, Germany, September 24, 2014. REUTERS/Thomas Peter/Files

BERLIN (Reuters) – The German economy is expected to contract by 0.3% this year and the energy crisis triggered by Russia’s invasion of Ukraine will continue to weigh on industry in Europe’s largest economy, Germany’ BDI industry association said on Tuesday,

Mild recessionary trends are expected to predominate at the start of the year, but things should start to improve in the spring, BDI President Siegfried Russwurm said.

German economic output stagnated in the final quarter of 2022 and grew 1.9% over the full year, the German statistics office said on Friday, adding to signs that the country may dodge a recession.

The BDI foresees exports of goods and services increasing by 1.0% in real terms this year, lagging behind global trade, for which a 1.5% rise is forecast, Russwurm added.

The BDI president said Germany is falling behind other countries where energy prices are not as high.

“The cost factor of energy has for long not only weakened energy-intensive companies, but has also had a noticeable impact on the entire value chains of industry,” he said.

Relocations of production could not be ruled out.

Russwurm argued for an improvement of the business and regulatory environment in Germany so that the country becomes more attractive for investors. “2023 must become a year of decisions, for the future of Germany as an industrial country, an export country and an innovation country”, Russwurm said.

The industry association also called for the tax burden on companies to be reduced to the international average level of a maximum of 25%.

Russwurm said Germany should diversify trade partners to increase resilience, although he warned that “resilience isn’t for free”.

European Union trade policy should be proactive, Russwurm said. A smart industrial policy was needed in response to the U.S. Inflation Reduction Act and that confrontation with Washington should be avoided, he said.

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