German economy ‘entering recession’, Deutsche Bank says

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Europe’s largest economy is heading into a recession and will contract by around 1% in 2023, according to economists at Deutsche Bank.

Falling natural gas supplies, a slowdown in the United States and other headwinds will cause Germany to contract in the second half of this year, analysts led by Stefan Schneider said in a report to clients. They also said record inflation had yet to peak.

The latest cut in energy supplies following the war in Ukraine has sounded alarm bells across Europe, and particularly in Germany due to its heavy reliance on Russian gas. A major concern is that the Kremlin could choose to use maintenance work on the Nord Stream 1 pipeline as an excuse to halt deliveries altogether.

“It seems reasonable to assume that Russia will continue to seek ways to disrupt economic activity in Europe in retaliation for Western sanctions and financial and military support for Ukraine,” the economists said. “That may not necessarily mean a complete shutdown,” but “the impact on industrial production and economic uncertainty will almost certainly push the German economy into recession in the second half of 2022.”

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