German government forecasts that the country's economy will shrink by 0.4% this year

The buildings of the banking district are pictured in Frankfurt, Germany, early Wednesday, Oct. 11, 2023. Light strips are caused by vehicles driving by. (AP Photo/Michael Probst) (Michael Probst, Copyright 2023 The Associated Press. All rights reserved)

BERLIN – Germany's government said Wednesday that it expects the country's economy to shrink by 0.4% this year, joining a string of other forecasters in revising sharply downward its outlook for Europe's biggest economy.

The revised forecast contrasted with the 0.4% growth that the government predicted in late April. The Economy Ministry said in a statement that “the effects of the energy price crisis in combination with global economic weakness are weighing down the German economy more persistently than was assumed in the spring.”

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On Tuesday, the International Monetary Fund forecast that the German economy will shrink by 0.5%. A group of leading German economic think tanks last month predicted a 0.6% contraction.

The government predicted that gross domestic product will increase by 1.3% next year and 1.5% in 2025, helped by a decline in inflation. That is expected to average 6.1% this year, but drop to 2.6% next year and 2% in 2025.

The Economy Ministry said it expects the economy to pick up around the turn of the year and then accelerate, helped by recovering consumer demand. It acknowledged that the “necessary fighting of inflation” by the European Central Bank, which has resulted in higher borrowing costs, has been a factor in Germany's difficulties.

Germany has also been grappling with other issues such as an aging population, lagging use of digital technology in business and government, excessive red tape that holds back business launches and public construction projects, and a shortage of skilled labor.

Last month, Chancellor Olaf Scholz, whose government is grappling with poor poll ratings and a reputation for infighting, urged Germany’s opposition and regional governments to help slash a “thicket of bureaucracy.”

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