Washington, D.C., 17 July 2023
This paper on Germany was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with the member country. It is based on the information available at the time it was completed on June 28, 2023.
The surge in energy prices since Russia’s invasion of Ukraine has reduced the energy-intensive sector’s production in Germany, although the non-energy intensive sector’s production has held up thanks in part to firms’ efforts to improve energy efficiency. Energy prices are expected to remain elevated in the foreseeable future, compared to pre-war levels, adversely affecting firms’ productivity and thus lowering Germany’s potential output. Economic modeling suggests that thiseffect could be around 1¼ percent of GDP in staff’s baseline, with some uncertainty around this estimate, given uncertainties about the ultimate magnitude of the energy price shock and the degree to which increased energy efficiency can mitigate it. Policies can promote effective adjustment to the shock by increasing productivity and maintaining strong price incentives to conserve energy and invest in renewable energy production.
Source – IMF