BERLIN (Reuters) – Germany’s economy has shown resilience over the past year thanks to a strong policy response and a mild winter, but economic growth will remain subdued in the near term, the International Monetary Fund said ( IMF) on Tuesday.

The tightening of financial conditions and the shock linked to the rise in energy prices have started to weigh on growth in the short term, the IMF warned in its report dedicated to Germany.

It forecasts that Germany’s gross domestic product (GDP) growth will remain close to zero in 2023, before gradually strengthening to between 1% and 2% between 2024 and 2026.

In the longer term, average GDP growth is expected to fall back below 1% due to population aging and the expected lack of acceleration in productivity or labor supply.

While headline inflation is steadily falling, core inflation is proving more difficult to control, according to the report. “A top priority in the short term is therefore to support disinflation with a moderate tightening of fiscal policy in 2023,” the report said.

In the medium term, Germany may need to create more fiscal space to invest in its future, according to the IMF. He expects Germany’s deficit to shrink to around 0.5% of GDP by 2027 as energy bill relief measures are phased out.

The debt brake, anchored in the German constitution, limits the budget deficit to 0.35% of GDP. The German parliament suspended the debt brake between 2020 and 2022 to allow additional spending in response to the COVID-19 pandemic and the effects of the war in Ukraine.

(Report Maria Martinez; Nathan Vifflin, edited by Blandine Hénault)

Copyright © 2023 Thomson Reuters