German economy faces only a slight slowdown in 2023

German economy faces only a slight slowdown in 2023

02/01/2023 11:34 am (act. 02/01/2023 11:40 am)

Nagel: There is no doubt that Germany will come back with stable prices

Nagel: No doubt Germany will come back with stable prices ©APA/dpa

Despite the ongoing risk of inflation and the massive corona wave in China, Germany is unlikely to face a deep economic crisis in the new year. The Bundesbank sees it that way, as does the wise Ulrike Malmendier. The leading economist expects two consecutive quarters of shrinking economic output: “But now I’m optimistic enough to say that we are not experiencing a mega-recession and certainly not a de-industrialization of Germany.”

Malmendier said this in an interview with “Handelsblatt” on Monday. The head of the Bundesbank, Joachim Nagel, also assumes that Germany will have a mild recession.

“And I am confident that we will manage to control the high inflation rate in the medium term. The Governing Council is very aware of its responsibility,” Nagel said in an interview with the “Zeitschrift für das Gesamtkreditwesen” (ZfgK). The statistics office Eurostat presents data on consumer prices in the euro zone for December on Friday. Experts expect the inflation rate to fall to 9.7 percent from 10.1 percent in November.

Even though the price increase is no longer in the double-digit percentage range, the European Central Bank (ECB) has yet to give the go-ahead. After the most recent increase of half a percentage point, the deposit rate that financial institutions receive from the central bank to park surplus funds is 2.00%. ECB President Christine Lagarde made it clear that interest rates must continue to rise at a pace of 0.50 percentage points for a certain period of time to dampen inflationary pressures.

According to Malmendier, high energy prices are a huge burden on the economy: “But companies are also extremely adaptable. Prices are already falling again”. At the same time, she has another concern: “The situation in China worries me,” said the professor of economics at the University of Berkeley, in the United States, who has been a member of the German Council of Economic Experts (SVR) since September.

Faced with the corona wave in the People’s Republic after the abrupt departure from the strict zero-Covid course and the resulting economic consequences, Germany must draw up an emergency plan: “If Chinese ports and factories are closed because almost all employees are sick , pull the dramatic economic consequences”, warned the economist. In their view, supply chains would collapse again and thus prices for raw materials and intermediate products would rise enormously. “I very much hope that the federal government already develops emergency plans for this case.” Germany needs a “crash course in protecting China”.

China’s head of state Xi Jinping noted that his zero Covid policy has failed: “Now the pendulum is swinging the other way: Beijing is apparently adopting a one hundred percent Covid policy instead of a zero Covid. But if easing goes too far in China, the number of infections will explode “, warned the member of the expert panel that advises the German government on economic issues. There are already fears that there could be several million deaths. Because the People’s Republic does not have a vaccine that works.

Since there is one in Europe, Malmendier believes it would be good if China allowed and bought to protect its population: “At the same time, it would be extremely important for the economy, both for China and for us and other trading partners. “