Price pressures in Germany weakened in 2023. As measured by the Harmonised Index of Consumer Prices (HICP), the annual average inflation rate was 6%, after consumer prices had risen by 8.7% in 2022. Falling energy prices contributed substantially to this reduction in inflation.
Interest rate staircase
The ECB Governing Council raised key interest rates six times in 2023. Between July 2022 and September 2023, it raised interest rates by a total of 4.5 percentage points, its largest interest rate hiking cycle since the introduction of the euro.
Economy treading water
Last year, high inflation, weak foreign demand and tight monetary policy were a drag on German economic output. Price and calendar-adjusted gross domestic product fell slightly by 0.1%.
Balance sheet length
The Eurosystem’s balance sheet has contracted by over €1,800 billion, or just over one-fifth, since the beginning of the latest monetary policy tightening cycle. This was mainly attributable to euro area banks, which repaid a large volume of loans from targeted longer-term refinancing operations (TLTROs).
Public finances
Germany’s deficit ratio fell from 2.5% to 2% in 2023. The main reason for the decline was the expiry of temporary crisis measures. The debt-to-GDP ratio likewise declined and continued to approach 60%. In its ruling of 15 November, the Federal Constitutional Court strengthened the binding effect of the debt brake.
Digital euro
In November 2023, the ECB Governing Council decided to continue working on the digital euro in a two-year preparation phase.
