April 14. 2024. 6:03

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Germany escapes recession but is slammed for economic policy

The government was criticised for its economic policy by some of Germany’s leading research institutes despite announcing that the country would not enter a recession in 2023.

Due to the energy crisis and high inflation, many economists expected the German economy to shrink in 2023. However, a new joint report by Germany’s leading economic research institutes predicts that the German economy will grow by around 0.3% in 2023 and 1.5% in the following year.

“The economic setback in the winter half-year is likely to have been less severe than feared in autumn,” Timo Wollmershäuser, Economic Director of the Ifo Institute, said on Wednesday.

German Economy Minister Robert Habeck was quick to claim credit for the “stabilisation” of the economy.

“Germany has mastered the extreme challenges: it has shown what it can do and what is possible when we act together and with determination. We must also act with this determination in 2023,” Habeck said in a press statement following the report’s publication.

However, the five leading research institutes that published the report did not share Habecks positive assessment but instead slammed the government’s economic programme, stating that it has not stimulated growth.

“The idea that we will get decarbonisation and a growth miracle on top is an illusion,” Stefan Kooths, Vice President of the Kiel Institute for the World Economy, stated. Instead, the current trajectory would lead to distribution conflicts due to increased labour shortages, he argued.

Habeck and Chancellor Olaf Scholz emphasised in recent weeks that the transformation of the German economy towards carbon neutrality would benefit the climate and drastically increase prosperity.

“Because of the high investments in climate protection, Germany will be able to achieve growth rates for some time, as last happened in the 1950s and 1960s”, Scholz said in early March.

In the 50s and 60s, the German GDP grew by 8% per year on average. However, the forecast for the next four years does not predict a higher growth than 0.9%.

“The growth prospects for the German economy are like a horse-drawn carriage in which the number of draught animals is decreasing, and the concentrated feed is being reduced, but more passengers are supposed to ride along,” Kooths said.

It is time to throw off some of the ballast, he added.

(Oliver Noyan | EURACTIV.de)