Germany ups its economic expectations

Govt predicts stronger year ahead and says recovery will gradually accelerate

Germany's government has said a "gradual recovery is underway" after doubling its economic growth forecast for the next 12 months.

Its spring economic projections were published on Wednesday and as a result, expected future growth has been upgraded from 0.2 percent to 0.4 percent.

Economy Minister Robert Habeck said there was still a "persistently difficult environment", but after a stagnant first quarter, he anticipated a gradual acceleration.

"For next year, we expect the recovery to continue and gain in breadth," he added. "Of course (it) is not at all satisfactory measured against normal years, but measured against what we had to fear in the winter of 2022-2023, it's quite an exclamation mark."

Much of Germany's recent economic trouble has been down to the loss of and urgent need to replace energy supplies from Russia, formerly its biggest supplier of natural gas, as a result of the Russia-Ukraine conflict, but Habeck said the economy had shown itself to be "adaptable and resilient" in the face of such a challenge.

He paid tribute to the efforts of Chancellor Olaf Scholz's government to reduce the impact of high energy prices on consumers, and thanked the public for its efforts in energy conservation, whilst also warning that the country could not be complacent.

He said the "enormous savings efforts by German consumers and German industry" had helped the country get through a potentially challenging winter without energy shortages, but said that they could not take their eye off the ball yet.

"It was just a few weeks ago when we did not know how we would get through the winter," he said. "Our memories should not be short."

Inflation, he added, has "passed it peak", with projections for 2023 and 2024 having been revised down by 0.1 percent for both years, to new figures of 5.9 percent and 2.7 percent. This contrasts with the figure of 7.4 percent reached in March this year.

Consumer spending power continues to bear the impact of recent high inflation, however, and is not expected to pick up until later in the year, with a 2.1 percent increase in private consumption now seen in 2024, but a recent survey by polling company GfK showed that consumer confidence, fuelled by new wage deals and government relief measures, continues to rise.

"More and more households are assuming that feared losses in purchasing power due to inflation will turn out to be much milder," said the polling company.

Germany is the economic and industrial heart of Europe, with its economic health having a major bearing on neighboring countries, so this more positive outlook and sense of optimism is likely to have a ripple effect across the continent.