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German Economy Expected to Contract Slightly in 2023 -Ifo

BERLIN, March 15 (Reuters) - The German economy will be unable to escape a recession in 2023, but following two quarterly contractions in the winter it will start its recovery in spring, the Ifo economic institute said.

In the first quarter, gross domestic product (GDP) is expected to contract by 0.2%, according to Ifo's forecasts published on Wednesday. The economy contracted by 0.4% in the fourth quarter of 2022 compared with the previous three months.

A recession is commonly defined as two successive quarters of contraction.

The institute forecasts economic output in 2023 will remain at roughly the same level as the year before, contracting by 0.1%.

In contrast, the German government expects growth of 0.2% this year, and another leading German economic institute, the IfW, raised its growth forecast on Wednesday to 0.5% from 0.3%, saying easing bottlenecks should contribute to an upward trend.

Both institutes predict the economy will recover in 2024, with Ifo foreseeing growth of 1.7% and IfW 1.4%, and inflation will remain stubbornly high this year before falling next year.

In 2023, inflation is expected to fall to 6.2% from last year's 6.9%, while in 2024, it will decline to 2.2%, according to Ifo.

Similarly, the IfW sees consumer prices rising by 5.4% this year and by 2.1% next year.

"We have reached the peak of inflation," said Ifo economic researcher Timo Wollmershaeuser, citing falling energy prices and an easing of supply chain bottlenecks. However, the strong increase in wages is creating new price pressure, he added.

"High inflation is reducing households' disposable incomes and leading to a decline in private consumer spending in the current year," the IfW said. A "noticeable loss of purchasing power" of 1.8"% is on the horizon, added the institute.

Reporting by Rene Wagner and Maria Martinez; Editing by Miranda Murray and Jon Boyle

Source: Reuters

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