War-driven energy crisis has been pushing the German economy into recession, with the purchasing power of private households projected to diminish by 4.1% next year, the sharpest fall ever observed since the reunification of Germany, a Kiel-based study showed on Thursday.
Still, the economy is expected to grow 1.4% this year, yet for 2023, the institute is revising its prediction down to a 0.7% contraction, remarkably affected by the results of the ongoing Russia-Ukraine war, according to the latest forecast of the Kiel Institute.
"With the high import prices for energy, an economic avalanche is rolling towards Germany. Energy-intensive production and consumption-related sectors of the economy in particular are being hit with force," said Stefan Kooths, the vice president of the Kiel Institute.
Germany's energy import bill is projected to hike by €123 billion ($122.5 billion) this year and by another $136 billion next year.
"The energy crisis is throwing a spanner in the works of what would otherwise have been a strong post-pandemic recovery. Expensive energy imports mean that Germany now has to transfer a much larger share of its earned income abroad than before," he underlined.
"This makes Germany poorer overall. With its relief packages, the government can therefore only redistribute the burdens, it cannot eliminate them,” said Kooths.
Meanwhile, not only Germany but also other European countries are facing the same recession threat, with the Kiel Institute saying that the euro area is "also drifting into recession with negative growth in the current and coming quarters."
The euro area inflation is projected to hike to 8.1% this year, the highest rate since the start of the monetary union.