Berlin, Mar 23 (IANS): Germany's economy is projected to narrowly avoid recession in 2023 with GDP growth of 0.2 per cent, the German Council of Economic Experts (GCEE) said on Wednesday.

The short-term outlook has "improved slightly" due to a stabilised energy supply situation and lower wholesale prices, according to the experts.

In its previous forecast published last autumn, the council said that the German economy would shrink 0.2 per cent this year, Xinhua news agency reported.

"The loss of purchasing power due to inflation, tighter financing conditions and the slow recovery of foreign demand prevent a stronger upswing this year and next," GCEE Chair Monika Schnitzer said in a statement.

China's reopening following the optimisation of its Covid-19 response, on the other hand, could "boost" German GDP growth as Chinese demand would "increase and thus benefit" foreign trade, the council said.

China remained Germany's most important trading partner for the seventh year in a row in 2022, according to official figures.

According to the GCEE, inflation is "still significantly elevated and is likely to decline only slowly". The annual inflation rate for 2023 is expected to decline slightly to 6.6 per cent.

Last year, Germany recorded a historically high inflation rate of 7.9 per cent. This was mainly driven by extreme price rises for energy products and food since the start of the Russia-Ukraine war.

In February, energy price increases slowed but remained the second-largest inflation driver after food at 19.1 per cent year-on-year, according to the latest official figures. Overall inflation stabilised at a "high level" of 8.7 per cent.

"The energy crisis is definitely not over," Schnitzer warned.

"In order to fully replenish the gas storages and prevent a gas shortage in the coming winter, we must continue to save energy extensively."