Germany's DIHK lifts forecast, sees economic stagnation in 2023

The seat of the BDA, BDI and DIHK is pictured in Berlin
The seat of the Bundesvereinigung der Deutschen Arbeitgeberverbaende BDA (Confederation of German Employers' Association (BDA), Bundesverband der Deutschen Industrie e.V. BDI (Federation of German Industries) and Deutsche Industrie- und Handelskammer DIHK (Association of German Chambers of Industry and Commerce) is pictured in Berlin, Germany, February 15, 2019. REUTERS/Fabrizio Bensch

BERLIN, Feb 9 (Reuters) - The German economy will stagnate this year, the DIHK Chambers of Commerce and Industry said on Thursday, revising upwards its forecast for Europe's biggest economy which it had previously expected to contract by 3.0%.

"The good news is that the German economy was able to avert a crash that threatened," said DIHK Managing Director Martin Wansleben in a presentation of the new forecasts.

"Instead of a deep recession, we are more likely to see a sideways movement this year and a red zero at the bottom line," he said.

Firms are also more optimistic about their outlook, a survey of 27,000 companies published by the DIHK showed. While in the autumn only 8% of those surveyed were optimistic about the business outlook in the next 12 months, the share has risen to 16% at the start of the year.

However, the number of pessimistic companies expecting business to deteriorate in the same period remains significantly higher at 30%, the survey showed.

On average across all sectors, three of four companies still view high energy and raw materials prices as a business risk, the survey showed. In the industrial sector, this figure remains very high at 85%.

Energy prices have eased but they remain much higher than before the crisis and much higher than in the U.S., Wansleben said.

German industry is set to pay about 40% more for energy in 2023 than in 2021, before the energy crisis triggered by Russia's invasion of Ukraine, a study by Allianz Trade said.

"This puts pressure on margins and investment opportunities," Wansleben said.

Only 27% of the companies surveyed want to invest more in the next twelve months, while 26% want to scale back their investments, according to the DIHK.

"Only if investment picks up more strongly can a self-sustaining upswing develop," Wansleben said. "For this to happen, the right conditions must be in place in Germany and Europe," he added.

The lack of appetite for domestic investments contrasts with the desire of German companies for investments in the U.S. The German American Business Outlook survey published Wednesday showed that 72% of the German companies surveyed planned to increase U.S. investment this year.

European leaders fear that the $369 billion of subsidies of the U.S. Inflation Reduction Act targeting North America-based manufacturers could lure companies away from Europe.

"As an exporting nation, we are dependent on the U.S.," Wansleben said. The U.S. remained the most important destination for German exports in 2022 for the eighth consecutive year. "This law makes our life more difficult," he said.

Reporting by Maria Martinez Editing by Madeline Chambers and Chizu Nomiyama

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