Inflation, contraction to plague German economy in 2023 -Ifo

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BERLIN — Germany’s economy will contract next year as a dramatic rise in energy costs due to the war in Ukraine extinguishes the chances of recovery after pandemic-related lockdowns, the Ifo institute said on Monday.

The institute reversed its June forecast of 3.7% growth for 2023 and now predicts that Europe’s largest economy will contract by 0.3%. At the same time, it bumped up its forecast for 2023 inflation by 6 percentage points to 9.3%.

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For 2022, Ifo lowered its growth forecast to 1.6% from 2.5% and raised its inflation forecast to 8.1% from 6.8%.

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“These are unusually large changes in such a short period of time,” said Timo Wollmershaeuser, head of Ifo’s economic forecasts.

Price increases should grow less dramatically over the course of the coming year – calculated under the assumption that there will be enough gas in winter – and energy prices will begin sinking in spring 2023 at the latest, said the institute.

For 2024, the institute predicts economic growth of 1.8% and inflation at 2.5%.

The German economy grew slightly in the second quarter, propped up by household and government spending.

(Reporting by Rene Wagner and Miranda Murray, editing by Rachel More)

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