BERLIN (`) – The German government on Wednesday lowered its growth forecast for this year, predicting that Europe’s biggest economy will shrink in 2023 as it deals with the aftermath of Russia’s war in Ukraine, including Moscow’s disruption of natural gas supplies .
The Economics Ministry expects German gross domestic product to grow by 1.4% this year and fall by 0.4% next year. At the end of April, it had forecast 2.2% growth in 2022, which would accelerate to 2.5% next year.
Since then, the effects of the war have worsened, energy prices are stubbornly high and Germany’s annual inflation rate hit 10% in September.
Russia, for a long time Germany’s most important natural gas supplier, began reducing deliveries through the main Nord Stream 1 pipeline in June and stopped them altogether at the end of August. Still, Germany’s gas storage facilities are nearly 95% full and officials say the country is well positioned to weather the winter – although efforts will be needed to conserve gas.
The Ministry of Economic Affairs announced that the main reason for the revision of the economic forecast was the Russian gas blockade and the resulting high energy prices. These high prices are driving inflation, weighing on industrial production and should reduce household consumption.
Russian imports once accounted for more than half of Germany’s gas supply and still accounted for just over a third before Moscow began cutting supplies this summer – citing technical problems German officials used as a cover for a policy decision to sow uncertainty and raise prices.
Germany forecast average inflation of 8% this year and 7% next year – a rate that would be significantly higher absent a so-called gas price brake the government plans to introduce to keep household and business energy bills under control.
It forecast that the economy will return to growth in 2024, with GDP growing by 2.3%.
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