The economic situation in Germany remains tense. According to the federal government’s current monthly report, it is to be expected that the hoped-for economic recovery will be further delayed.
The federal government only expects the German economy, which is at risk of recession, to recover later. “Stressful factors such as weak external demand, strikes in public transport, high levels of sickness among the workforce and geopolitical tensions with delays in supply chains can all lead to the expected economic recovery being delayed again,” says the monthly report published today.
Hope lies in private consumption
No major stimulus is expected from foreign trade. “In view of the ongoing geopolitical crises and the economic slowdown in important trading partner countries such as China and the USA, the prospects for the German export industry remain cloudy at the beginning of the year,” it says. The repeated attacks by the Houthi militias in the Red Sea and the resulting changes in shipping routes, which are associated with longer transport times, are also problematic.
The government expects improvement in private consumption. “With rising wages and falling inflation rates, a recovery in private consumption can be expected over the course of the year.” At least at the moment it doesn’t look like this: the mood of consumers in Germany has deteriorated significantly in the new year. The GfK barometer for the consumer climate in February recently fell surprisingly significantly. At the same time, the propensity to save rose sharply.
Will the GDP forecast be lowered?
Most recently, the German gross domestic product shrank by 0.3 percent in the fourth quarter of 2023, due, among other things, to falling investments in buildings and equipment such as machines. If it falls again in the current first quarter, it will be referred to as a technical recession. It is not unlikely that this will happen: the Bundesbank expects “at best” stagnation from January to March.
Commerzbank chief economist Jörg Krämer has long expected that the German economy will also shrink in the current first quarter. “Companies and consumers simply have too much to cope with when you think about the new interest rate regime, inflation concerns, the erosion of location quality and the fading tailwind from China.” After the recession ends, there is no strong recovery in sight,” emphasizes the economist.
The government also seems to be becoming more pessimistic: The Reuters news agency claims to have learned from government circles that the draft of the government’s new annual economic report, which is to be published next week, only predicts an increase in gross domestic product (GDP) of 0 for the current year. 2 percent is assumed. That would be a significant correction: the government had previously expected 1.3 percent.
Research institutes are significantly more skeptical
This forecast from October of the previous year is no longer considered realistic anyway, as a number of recent economic figures were disappointing. The federal government’s current GDP forecast is also well above the forecasts of the Munich Ifo Institute and the Kiel Institute for the World Economy (IfW).
The ifo economists lowered their forecast for 2024 from 0.9 to 0.7 percent in January, and the IfW from 1.3 to 0.9 percent in December. They want to present new forecasts in March. The trade union-affiliated Institute for Macroeconomics and Economic Research (IMK) is already predicting a decline of 0.3 percent. According to the Federal Statistical Office, the gross domestic product in Germany had already shrunk by 0.3 percent in 2023.
The Organization for Economic Cooperation and Development (OECD) has also become more pessimistic in its new forecast from the beginning of February. The experts assume that the German economy will grow by 0.3 percent this year. The forecast has therefore been halved compared to November.