Germany’s economic forecast improves

The German government has announced that it expects the country’s economy to grow slightly in 2023, instead of a decline as previously expected. This is due to the country’s efforts to manage its energy transition away from Russia and provide support for consumers and businesses affected by higher energy costs. The outlook for economic growth in 2023 has improved to 0.2% expansion, as compared to the 0.4% contraction that was predicted in October.

The improved outlook is attributed to a number of factors, including warmer-than-usual weather and the country’s ability to secure additional supplies of liquefied natural gas (LNG) through ships, instead of pipelines from Russia. Russia’s state-owned exporter, Gazprom, has halted the majority of its natural gas exports to Europe as countries support Ukraine during the ongoing war. As one of the countries most dependent on Russian natural gas, Germany had no LNG reception terminals at the start of the year, but now has three floating terminals on its northern coast, at a significant cost.

The government has also implemented price caps on electricity and natural gas as part of 200 billion euros in added government spending, enabling people to buy 80% of their heat or electricity at fixed prices.

Despite the improved outlook, growth is still expected to be close to zero for the last months of 2022 and the first part of 2023 and could potentially be slightly negative. However, with the outlook for Europe’s largest economy looking less gloomy, some economists predict that the 20 countries that use the Euro currency may avoid a shallow technical recession. However, high inflation remains a significant drag on growth as higher prices for food and utilities erode consumer spending power.

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