"We are entering a winter recession," says Timo Wollmershäuser, Head of Economic Forecasts at ifo. The institute now expects economic output to shrink by 0.3 percent next year and growth of just 1.6 percent this year. Currency devaluation is likely to average 8.1 percent this year and as much as 9.3 percent next year. "The cuts in gas supplies from Russia in the summer and the resulting drastic price increases are putting a damper on the economic recovery after coronavirus. We don't expect a normalization with 1.8% growth and 2.5% inflation until 2024," he says.

Compared to June, the ifo has significantly lowered its growth forecast for 2023 by 4.0 percentage points and raised its inflation forecast by a hefty 6.0 percentage points. "These are unusually high changes in such a short period of time," Wollmershäuser continues. Energy suppliers adjusted their electricity and gas prices noticeably to the high procurement costs, especially at the start of 2023. This will drive the inflation rate up to around 11% in the first quarter. As a result, real household incomes will fall sharply and purchasing power will decrease noticeably. Although the government's third relief package should counteract this decline somewhat, it is far from compensating for it.

Loss of purchasing power higher than ever before

"The loss of purchasing power, measured by the decline in real per capita wages by around 3% this year and next year, is higher than at any time since the beginning of today's national accounts in 1970," adds Wollmershäuser. In the further course of the coming year, the price increase will gradually weaken. The ifo Institute assumes that there will be sufficient gas available in winter. Energy prices should therefore not rise any further and fall again from spring 2023 at the latest.

The ifo Institute does not expect any serious impact on the labor market. The increase in employment will only slow down temporarily. The increase in unemployment by a good 50,000 people in the coming year is mainly due to the sharp rise in unemployed Ukrainian citizens in summer 2022, who will only be gradually integrated into the labor market.