Germany was given a grim economic outlook on Tuesday, as companies said they would curb production due to sky-high energy costs.
According to a survey, many companies also expect to cut jobs and scale back investments in 2023.
It comes amid high inflation spurred by the war in Ukraine that has dashed hopes of a smooth post-pandemic recovery.
After Russia stopped exporting gas, Germany had to pay much higher prices for importing energy on the world market.
Companies are pessimistic that prices will return to pre-crisis levels in the foreseeable future, said Michael Groemling from the German Economic Institute, which published the results.
“The consequences of the war in Ukraine are still putting the German economy to the test,” he said.
Of 49 groups representing different sectors of the economy, 30 said their members would cut output in 2023, while just 13 said it would increase.
16 forecast job cuts and nine expect more hiring, while 23 expect the job market to stall.
The steel and construction industries have particularly poor prospects due to their high energy costs.
However, the real estate and financial sectors are also concerned about high borrowing costs, according to the institute.
The European Central Bank recently raised interest rates to their highest level since 2008 in a bid to curb inflation.
Inflation in Germany is in double digits for the first time since reunification in 1990.
Institute director Michael Hüther said inflation may have peaked after falling slightly to 10 percent.
But he told Deutscher Rundfunk that next year inflation will still average 6 percent.
“Two-thirds of inflation is imported, and when inflation is imported, the central bank cannot act as quickly or easily,” he said.
“It’s really only at the expense of a stabilizing recession, but we should avoid paying that price, so it’s going to take a little longer.”
The federal government expects Europe’s largest economy to slip into recession over the winter.
She hopes an aid package worth up to 200 billion euros ($213.2 billion) will ease the pain for businesses and consumers.
People are also being urged to reduce their gas consumption by 20 percent or more so that precious supplies go further.
Mild weather has brightened the picture somewhat over the past week, with storage tanks filling up more than they were emptied for five days in a row.
The first imports from a new gas terminal on the German North Sea coast should also provide some relief.
“Well-filled storage means energy security for 2023” and for the next winter, said Klaus Müller, head of the German network regulator.
Updated December 27, 2022 12:12 p.m
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