The German government on Wednesday raised its growth forecast for this year as a rebound in industrial production and easing inflation helped Europe’s elite economy weather an energy crisis.
The manufacturing powerhouse is set to grow 0.4 percent in 2023, the Economy Ministry said in its latest forecasts.
The prediction highlighted a steady improvement in German wealth since last year’s Russian invasion of Ukraine sparked the energy crisis and sparked recession fears.
The government’s last forecast in January called for a 0.2 percent expansion, and in October it had predicted a 0.4 percent contraction in 2023.
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Economics Minister Robert Habeck said the improved forecast was “really remarkable” given the difficult conditions.
“The German economy has shown itself to be adaptable and resilient,” he told a news conference, adding that a “gradual recovery” was underway.
Germany was hit particularly hard by Moscow’s invasion of Ukraine and subsequent cuts in gas supplies, as the country’s export-oriented economy was heavily dependent on cheap Russian energy.
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But Berlin introduced massive relief measures to cushion consumers and businesses and rushed to diversify its energy supplies.
The relatively mild winter weather also meant that gas storage facilities were not exhausted as quickly as some had feared.
Habeck praised the “enormous savings efforts of German consumers and German industry” that would have helped the country to get through the winter without an energy shortage.
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But he also warned that such efforts must be continued: “It was just a few weeks ago when we didn’t know how we were going to survive the winter. Our memories should not be neglected.”
Gas prices have fallen sharply in recent months, helping bring inflation down from a decade-high of 8.8 percent in October. In March it was 7.4 percent.
Additionally, lower energy prices and the reopening of the Chinese economy after long Covid shutdowns have boosted Germany’s huge industrial sector in recent months.
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The Economy Ministry noted that indicators such as industrial production and business confidence surveys pointed to an improving economic outlook later in the year.
The ministry forecast that the recovery will gather momentum next year and the economy will grow by 1.6 percent.
It forecast inflation of 5.9 percent this year and 2.7 percent in 2024.
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Despite the brightening picture, the German economy still faces many challenges.
Habeck complained about the “dramatic” shortage of skilled workers.
According to the Federal Institute for Labor Market and Vocational Research, almost two million jobs were vacant in Germany at the end of 2022.
The economy ministry also said high inflation will weigh on the economy throughout the year and hurt consumers’ purchasing power.
The impact of slowing inflation would only be felt later in the year, it said.
Preliminary growth data for the first quarter will be released on Friday and is expected to show that the economy has weathered weak growth and avoided a recession.
The economy suffered a shocking 0.4 percent contraction in the last three months of last year as the aftermath of the Ukraine war took hold.
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