Researchers predict for 2023 a contraction of the Gross Domestic Product (GDP) and up to 9.7 percent inflation.

On October 1, the minimum wage in Germany will increase to 12 euros/hour. Experts say that this will further increase inflation.

According to the Munich Institute for Economic Research (IFO), the further increase in the minimum wage is likely to "further increase inflation." Almost a third of the 6,900 companies surveyed by IFO said they pay some of their staff 12 euros an hour. 58 percent of these companies "are planning to increase prices in response to the wage increase."

The minimum wage was increased in July from 9.82 to 10.45 euros per hour and will be increased by law to 12 euros on October 1. More than 6 million employees will benefit from this.

"Half of the affected companies expect less profit, a quarter are counting on a drop in demand for their products. To compensate for this, 18 percent are considering reducing employees' working hours or reducing additional payments. Only 13 percent of the affected companies plan to cut jobs," said IFO expert Sebastian Link.

Differences between branches of the economy

The IFO points out that there are large differences depending on the region and industry. While in West Germany there are 29 percent of surveyed companies that pay their workers less than 12 euros per hour, in East Germany there are 40 percent. On average, in the entire country, 6 percent of employees are paid less than 12 euros/hour.

The most affected companies are in the hotel industry with 78 percent, in the temporary employment sector with 64 percent, in the retail trade branch with 58 percent, in the textile industry with 72 percent and in the food and beverage industry with 61 percent. In the metal and chemical industries, the minimum wage does not play a role. The construction industry pays a minimum wage of 12.85 euros per hour.

The state cannot compensate for inflation

The German Ministry of Finance (BMF) raises doubts about the usefulness and effectiveness of the three rescue packages that the federal government has launched to fight high energy prices.

"Full compensation for reduced real incomes by the state is neither affordable nor makes economic sense," says a BMF document in preparation for the meeting of finance ministers from the Eurozone and EU, which is taking place this weekend.

From Germany's point of view, so far, the federal government has only partially fulfilled the goals it set for itself with the three relief packages, which in total reach the figure of nearly 100 billion euros. The packages contain many measures, such as financial assistance for people in need, compensation for the increase in the price of energy with a salary supplement of 300 euros gross in the month of September for each employee, and a supplement of 100 euros for each child.

Relief packages raise prices

The document in question also explicitly warns that easing measures could further increase prices.

"Particular care must be taken not to further increase inflationary pressure through fiscal policies," write experts from the Federal Ministry of Finance.

Experts have also expressed concern that debt-financed relief packages could weigh on EU member states' budgets.

"Sustainable public finances remain essential, especially in the context of rising interest rates," they write.

The economic situation in the Eurozone is "characterized by a high degree of uncertainty." Above all, there is the risk of even higher inflation in the Eurozone, but also of a further weakening of the economic situation.

Record inflation for 2023

These concerns were previously expressed by two other institutes. The Institute for Economic Research based in Kiel (IfW), in an analysis, has predicted an inflation of 8.7 percent for the next year. Currently, inflation in Germany is at a record level of 8 percent.

Meanwhile, the Institute for Economic Research in Halle (IWH), in the autumn forecast, calculates with an inflation of 9.5 percent.

Both institutes calculate with a strong GDP decline.

"The German economy is going into decline," the IfW report says.

The increase in the price of gas and electricity will significantly reduce purchasing power. According to the IFW, Germany will have a GDP decline of 2023 percent in 0.7, while the IWH calculates a GDP decline of 1.4 percent.

The weakening of the conjuncture all over the world has as an effect not only the decline of exports, but also the decline of investments.

"As a result, the German economy will again fall into recession, precisely at a time when it was just beginning to recover from the shocks of the pandemic," writes IfW from Kiel.

Unemployment growth not very high

Amidst all these gloomy predictions, there is a glimmer of hope: There will be no big increase in unemployment. The reason for this is the lack of qualified workforce.

IfW economists forecast an increase in unemployment from 5.3 percent to 5.6 percent.

And public revenues will not be reduced either. According to experts, although the state gives a lot of money to ease the burden of the increase in energy prices, the state's income from taxes and fees is not expected to fall, due to high prices.

Even the level of gross debt in relation to GDP is expected to drop by 2024 to 64.6 percent. In 2021 it was 68.7 percent, predict the economists from Kiel. /Deutsche Welle/

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