Daily Times

Germany will suffer a deeper recession than previously thought, the International Monetary Fund said Tuesday, predicting that Europe’s traditional growth engine will be the worst performing major economy in 2023.

The German economy, buffeted by high inflation and a manufacturing slump, is now expected to shrink by 0.5 percent this year, the IMF said. It had forecast a 0.3-percent contraction back in July. Europe’s largest economy will be the only one of the Group of Seven rich nations not to grow this year, the updated forecasts confirm.

Germany faces multiple headwinds including “weakness in interest-rate-sensitive sectors and slower trading-partner demand”, the IMF said in its latest report. The country — which tipped into a recession at the start of 2023 and stagnated in the second quarter — is headed for another “slight economic contraction” in the second half of the year, according to the IMF. The Washington-based institute sees Germany rebounding in 2024, but downgraded its expectations to 0.9 percent growth from July’s 1.3 percent.

Germany’s troubles are set to act as a drag on eurozone growth, with the IMF slightly lowering its 2023 forecast for the 20-nation currency club to 0.7 percent growth.

There was better news for eurozone heavyweight France where a “catch-up in industrial production and external demand” led the IMF to predict 1.0 percent expansion for 2023, up from 0.8 percent previously.

But fellow G7 member Italy, grappling with inflation stubbornly above the eurozone average, saw its growth prediction slashed by 0.4 percentage points to 0.7 percent.