The German economy was particularly burdened by consumer restraint in the summer quarter. According to the Federal Statistical Office, gross domestic product fell by 0.1 percent from July to September. Economists are hoping for 2024.
The German economy shrank in the third quarter. The gross domestic product (GDP) fell by 0.1 percent from July to September compared to the previous quarter after price, seasonal and calendar adjustments, the Federal Statistical Office announced today in a flash estimate. However, the data is better than expected: economists surveyed by the Reuters news agency had even expected a decline of 0.3 percent. According to revised figures, economic output grew slightly in the spring (plus 0.1 percent), but stagnated at the beginning of the year.
Private consumer spending in particular fell in the summer, as the statisticians reported. There is also headwind from increased interest rates. These depress demand, for example for construction services. At the same time, the German export industry is feeling the effects of the weakness of the global economy. On the other hand, positive impulses came from companies’ investments in equipment, for example in vehicles. Investment in equipment refers to mobile capital goods such as machines and devices.
High inflation burdens
Above all, high inflation puts a strain on consumers because they can afford less for their money. Many people are limiting their consumer spending. The inflation rate fell to 4.5 percent in September after 6.1 percent in August. Food prices once again rose above average.
“Despite the decline in inflation, we expect private consumption to emerge from its doldrums only gradually as consumer confidence remains subdued,” Deutsche Bank economists analyzed.
What is the gross domestic product?
Gross domestic product (GDP) shows how well or poorly a country’s economy is developing. Everything that is produced within a certain period of time is included. In addition, the value of services and the spending of consumers as well as investments by companies – for example in machines – are included. All economic sectors are taken into account. The largest item is private consumption. Another component is the so-called external contribution – i.e. the difference between what companies sell abroad (exports) and buy from there (imports).
“The minus is not an outlier”
“Germany’s economy is more or less standing still,” says Jens-Oliver Niklasch, an economist at LBBW. “The balance sheet should also be similar in the final quarter of 2023. Only for the period after that can one become a little more confident. Overall, the downside risks for the economy currently predominate,” emphasizes Niklasch. Only in the course of the coming year will more growth be possible again, even against the backdrop of falling inflation, says Ralf Runde, an expert at Helaba.
“The loss in the third quarter is not an outlier,” comments Jörg Krämer, chief economist at Commerzbank. The German economy is likely to shrink again in the winter months because it is suffering from the massive interest rate increases by the ECB and almost all western central banks. Consumption is unlikely to recover, contrary to what the optimists had hoped, according to the expert. “All in all, unlike most economists, we expect gross domestic product to decline again next year, by 0.3 percent.”
Economic forecasts lowered
Leading economic research institutes currently expect gross domestic product to shrink by 0.6 percent in 2023 as a whole. In the spring, the institutes had assumed a mini-growth of 0.3 percent. The German economy is expected to grow by 1.3 percent next year. The federal government now expects economic output to decline by 0.4 percent in 2023. Growth of 1.3 percent is also forecast for 2024.