BERLIN (Reuters) -The German economy will contract in 2023 and recover only slightly next year, according to the annual report of the German Council of Economic Experts published on Wednesday.
Germany's gross domestic product is expected to contract by 0.4% in 2023, according to the experts, in line with the forecast of the German government.
The energy crisis and reduced real incomes due to inflation are still weighing on the short-term economic outlook, the experts said. High interest rates are also taking their toll on construction and investment.
For 2024, the experts forecast growth of 0.7%, well below the 1.3% projected by the government.
Medium-term growth prospects are therefore at an all-time low, according to the report.
"In order to overcome weak growth, Germany must invest in its future," said Monika Schnitzer, chair of the council. "This requires greater productivity through innovations, investments and more dynamism in startups."
German Chancellor Olaf Scholz said on Wednesday he was confident the economy would grow again in 2024 through a package of measures to promote investment.
"We have to make sure we get back on track," he said, when receiving the experts' report. "It's about future growth, and we want to see that again in 2024."
"On the one hand, the Council of Economic Experts confirms measures such as the Growth Opportunities Act to strengthen the economy," German Finance Minister Christian Lindner posted on X, formerly knows as Twitter. "However, it also puts its finger on the fact that we need further reforms."
Schnitzer added that reforms were "urgently needed" in the tax and pension systems too.
According to the council's forecasts, the inflation rate will fall to 2.6% in 2024, from an expected 6.1% this year.
As price rises moderate, private consumption should recover, making a positive contribution to growth next year, the economists said.
The analysis shows the growth prospects of the German economy in the coming decades will be dampened in particular by the shortage of labour due to demographic changes, said Veronika Grimm, member of the council.
She said there should be incentives for women to work and to foster immigration.
"However, measures to increase the volume of work will not be enough," she noted. "Investment is of crucial importance if the German economy is to return to a sustainable growth trajectory."