German Economic Institutes See 2023 Contraction as Gas Crisis Hits

A display board shows the current prices of gasoline and diesel at a gas station of the company "NeebTank in Graefelfing near Munich, Germany, June 1, 2022. A temporary reduction in the energy tax is intended to lower the prices of gasoline and diesel after they had risen sharply due to the war in Ukraine. REUTERS/Lukas Barth

Four leading German economic institutes have almost halved their spring economic growth forecast for Europe's largest economy this year and slashed their 2023 projection to -0.4% from 3.1%, they said on Thursday.

The four institutes now expect 1.4% growth this year, down from 2.7% seen in the spring.

"The crisis on the gas markets is having a severe impact on the German economy," said the four institutes - Munich-based Ifo, the Kiel Institute for the World Economy (IfW Kiel), the Halle Institute for Economic Research (IWH) and the Leibniz Institute for Economic Research (RWI).

"Soaring gas prices are drastically increasing energy costs, leading to a massive reduction of the purchasing power," they added in a statement.

Under a risk scenario of a very cold winter, gas shortages and a lack of savings in energy consumption, the institutes expect gross domestic product (GDP) to contract by 7.9% in 2023 and by 4.2% in 2024.