Germany expects recession next year as gas crisis worsens

The German government expects Europe's largest economy to slide into recession next year, contracting 0.4 percent as an energy crisis, rising prices and supply bottlenecks take their toll, two sources told Reuters news agency, citing provisional figures.

The government has cut its growth forecast for 2022 to 1.4 percent from an April projection of 2.2 percent, the sources added on Thursday. It had previously forecast growth of 2.5 percent for 2023.

The government also expects inflation to remain in the high single digits, at a level of 7.9 percent this year and 8 percent in 2023, the sources said, though these figures could change slightly depending on the effect of a gas price brake.

The government expects the economy to return to 2.3 percent growth in 2024, the sources said.

When approached for comment, an economy ministry spokesperson said Economy Minister Robert Habeck would unveil the figures next week.

"There are no final figures yet. The final work is ongoing," the spokesperson said.

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Governments scramble

The figures tally with projections by leading economic institutes, which last month cut their forecasts for economic growth this year and slashed their 2023 projection to minus 0.4 percent from 3.1 percent.

Europe has been roiled by a gas stand-off with Russia since the offensive on Ukraine in February that has left governments scrambling to secure energy supplies and cushion households from rocketing prices.

Chancellor Olaf Scholz last week set out a 200 billion euro ($197 billion) relief package that included a gas price brake and a cut in sales tax for fuel.

German inflation was at its highest rate in more than a quarter of a century in September, driven by high energy prices, with analysts warning the worst was yet to come. 

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