KfW Research
An inflation shock, war-induced uncertainty, rising interest rates and a weak global economy are choking off economic growth for the time being. Germany is poised to slip into a moderate technical recession in the winter half of 2022/2023. GDP will just barely stagnate in 2023 and grow by 1.0% in 2024. Inflation will remain at a high 5.8% in 2023 and moderate to 2.1% in 2024. According to our ecological price tag for GDP, greenhouse gas emissions will decline, but the drop will be 6% and 7% below the 2023 and 2024 policy target. Euro area GDP will grow by 0.5% in 2023 and 1.2% in 2024. Inflation there will sit at 5.4% and 1.7%, respectively. Depending on the progression of the Russia-Ukraine war, significant forecast revisions may become necessary.
KfW Research forecasts the annual average growth rate of the gross domestic product (GDP) in Germany and the Euro Area in quarterly intervals. GDP is a key measure of economic performance. It measures the value of goods and services newly produced within the domestic territory in a specific period of time. The percentage change of GDP adjusted for price effects, i.e. real economic growth, is the most important and most widely recognised business cycle indicator. The KfW Business Cycle Compass focuses on predicting real GDP growth rates for the ongoing and for the coming year.
Furthermore the forecast for consumer price inflation in Germany and the Euro Area is a regular component, alongside anticipated greenhouse gas emissions that are consistent with predicted economic growth. KfW Research has developed its own approach to calculate the climate cost of growth (see Focus on Economics No. 400(PDF, 214 KB, accessible)), to which the info box "Ecological price tag for GDP" has been dedicated since the Autumn Forecast 2022.
How the KfW Business Cycle Compass is constructed: Our GDP forecasts are based on the unadjusted results of two econometric models, which are used to deduct forecasts for the annual average growth rates for the ongoing and coming year, as well as the quarterly growth rate for the current quarter, using financial and real economic leading indicators. In an intensive discussion process, these model results are compared with qualitative expert assessments, which also include non-modellable qualitative factors. The result is an economic forecast that fits consistently into our scenario for Europe and the global economy.
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