Consumers’ reluctance to buy, increased building interest rates and the sluggish global economy took a toll on the German economy last year. It shrank at the end of the year. The gross domestic product (GDP) fell by 0.3 percent in the fourth quarter compared to the previous quarter, as the Federal Statistical Office announced on Tuesday based on preliminary data.
Europe’s largest economy is at risk of recession if it shrinks for the second time in a row in the current first quarter. According to the Ifo Institute’s forecast, economic output is likely to fall by 0.2 percent from January to March. “This would put the German economy in recession,” said Ifo economics chief Timo Wollmershäuser.
Other experts also expect another difficult year in 2024 and a weak start to the year. “There are the government’s austerity measures, but also ongoing strikes by train drivers and disruptions to supply chains as a result of the military conflict in the Red Sea,” said ING chief economist Carsten Brzeski. “All in all, German economic performance could at best stagnate in the first quarter of 2024,” writes the Bundesbank in its January monthly report. This would delay the expected recovery.
According to the Ifo Institute, companies in almost all economic sectors complained about falling demand. “In industry and the construction industry, the thick order cushions that companies had built up during the Corona period have now melted away,” said Timo Wollmershäuser.
Private consumption could increase in the first quarter of 2024
The economist added that incoming orders have been declining for many months. “A wave of cancellations swept through the country, particularly in residential construction.” Added to this is a restrictive monetary policy. In the fight against inflation, the central banks in Europe and North America have raised their key interest rates sharply, which is currently having its full effect. This makes financing investments significantly more expensive.
According to Wollmershäuser, there are “first rays of hope” in private consumption. The data available up to mid-January (credit cards, debit cards, cash) from the provider Mastercard showed an increase in price-adjusted sales in retail and hospitality since the Advent season. Private consumption could therefore increase in the first quarter of 2024. “The revival of purchasing power is likely to be noticeable here, as private household incomes are now rising faster than prices.”