IMF Staff Country Reports

This 2023 Article IV Consultation discusses that the German economy has demonstrated resilience following the shut-off of Russian gas supply in the year 2022. The energy shock and tightening financial conditions are expected to keep annual gross domestic product (GDP) growth slightly negative in 2023. Uncertainty is unusually high, with substantial risks in both directions, which on balance are tilted downward for growth. Near-term policy priorities include supporting disinflation by tightening fiscal policy. The planned tightening of the cyclically-adjusted primary balance by around ½ percent of GDP in 2023 will support these efforts. An additional 1 1/2 percent of GDP in 2024 is appropriate under the baseline forecast and can be achieved mainly by saving expected underspending on energy price relief and any revenue over performance. The authorities’ policy response to spillovers from Russia’s war in Ukraine has been timely and generally well designed. Continued efforts will be needed to address ongoing challenges related to inflation risks, rising interest rates, population aging, the green transition, and increasing risks associated with global geoeconomic fragmentation (GEF).