There are increasing signs of a recession in Germany. The economy contracted in the last three months of 2023. Economists do not expect any improvement in the current quarter either.
The German economy shrank at the end of 2023. According to the Federal Statistical Office, gross domestic product fell by 0.3 percent in the fourth quarter compared to the previous quarter, adjusted for price, season and calendar reasons.
Compared to the fourth quarter of 2022, the decline is 0.2 percent. The authority thus confirmed initial estimates from mid-January. Economic performance had stagnated in the previous two quarters. In 2023 as a whole, gross domestic product fell by 0.3 percent.
Recession threatens
If the German economy continues to shrink in the current first quarter, for the second time in a row, Europe’s largest economy would slip into recession according to the scientific definition. According to a current forecast from the Munich Ifo Institute, gross domestic product will fall by 0.2 percent from January to March compared to the previous quarter.
In almost all economic sectors, companies complained about falling demand, explained ifo economics director Timo Wollmershäuser. “In industry and the construction industry, the thick order cushions that companies had built up during the Corona period have now melted away.”
Several Stress factors
“Incoming orders have been declining for many months, and a wave of cancellations swept through the country, especially in residential construction,” said Wollmershäuser. 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.
“In addition, the economy is burdened by a number of special factors,” said the ifo expert. These included the high level of sickness, the strikes at Deutsche Bahn and the exceptionally cold and snowy January.
No trend reversal in sight yet
At the beginning of the year, the ifo business climate index signaled an accelerated downward trend. The most important German leading indicator slipped to its worst value since May 2020.
The decline forecast so far points to a comparatively mild recession. However, economists do not yet see a trend reversal for the rest of the year. The weakness at the turn of the year is not yet included in most of the economic forecasts currently circulating, nor in those of the federal government, explained Sebastian Dullien from the IMK Institute in Düsseldorf. “A new wave of downward revisions to economic forecasts can therefore be expected in the coming weeks.” The IMK itself predicts a decline in gross domestic product of a further 0.3 percent for 2024 as a whole.
Growth in the EU is stagnating
Germany, as the largest economy, continues to slow growth in the European Union. According to data from the EU statistics office Eurostat, economic output in both the euro zone and the 27 EU countries remained unchanged in the fourth quarter compared to the previous quarter. For 2023, Eurostat recorded slight growth of 0.5 percent overall compared to the previous year.
In countries such as Portugal and Spain, GDP increased slightly in the fourth quarter. The economy shrank somewhat more significantly at the end of the year in Ireland with minus 0.7 percent and in Belgium and Latvia with minus 0.4 percent each, as the statistics office also announced.
Lars Hofmann, HR, tagesschau, January 30, 2024 11:00 a.m