PUSH Germany narrowly avoids a recession, but confirms its deep economic crisis in 2023: it emerged from the German Federal Statistical Office.
Gross domestic product fell 0.3% between October and December, according to Monday’s preliminary estimate. But with the previous three months revised upwards from 0.1% to 0%, Europe’s biggest economy avoided two consecutive quarters of contraction (signaling a technical recession).
It was a tough year though: The GDP decreased also down 0.3% over 12 months, the first decline of its kind since the pandemic. It’s news that stands in stark contrast to other economies around the world – Germany was arguably the only G7 economy to pull out – and raises questions about the country’s future as industrial strength.
Germany is no longer a power? Budget 2023
In 2023 in Germany economic progress overall, it faltered in a context that continues to be characterized more crises: these are the words of Ruth Brand, President of the German Statistical Office.
The nation, the first in the G7 to announce its fourth-quarter GDP estimate, has been tipped by experts in 2023 to the weakest among the main developed countries of the world. The reasons for this weakness were largely linked to the manufacturing sector, which is reeling from rising energy prices, rising interest rates and weak foreign demand.
Although the year began with relief that the energy shock caused by Russia’s war in Ukraine would be more manageable than initially feared, the economy lost steam and never really started to grow again. The recovery expected in the second half of the year did not materialize, activity is fragile despite falling inflation.
The German manufacturing sector, excluding construction, fell sharply by 2%, driven by lower output in the energy supply sector. Last year’s weak domestic demand a “sustained global economic momentum” they suffocated foreign tradedespite the drop in prices. Imports fell by 1.8%, i.e. more significantly than exports.
As the data shows, household consumption fell by 0.8% in 2023 compared to the previous year and public spending fell by 1.7%.
Germany, more than any other European country, found itself – and still finds itself today – in front of an epochal and urgent task: to adapt a business model that had long been based on Russian energy imports and on one strong dependence on Chinaboth for components and as a market for internal combustion engine cars.
What to expect in 2024? Germany remains in crisis
Capital Economics predicts that Germany’s problems are not over yet and predicts no growth for the country in 2024.
“The recessionary conditions that have been lingering since late 2022 look set to continue this year”chief European economist Andrew Kenningham said in a statement. “It is true that the recent drop in inflation should provide some relief to households, but residential and commercial investment is likely to decrease and construction is headed for a sharp decline while the government tightens fiscal policy sharply. We expect one zero GDP growth in 2024“.
“Some take comfort in the fact that the economy ‘just’ stagnated and avoided a more severe recession. But that shouldn’t be a reason for complacency.”, said Carsten Brzeski, global head of macro at ING. Looking into the future, at least in the early months of 2024, many of the latter inhibits growth they will still be present and in some cases will have an even stronger impact than in 2023, the economist said.
“The risk of 2024 being another recession year is high”added Brzeski.
According to Commerzbank Chief Economist Joerg Kraemer, it is worrying that the German economy has hardly grown at all since the outbreak of the coronavirus. “This is a rare event and brings back memories of the years after the stock market bubble burst at the turn of the millennium.”.
Martin Ademmer, an economist, pointed out on Bloomberg that growth will pick up slowly in 2024, reaching 0.5% during the year, as higher real incomes could support household consumption. However, the recent decline in trade expectations highlights the risk that more pronounced industrial weakness will cause the slowdown to continue into the first quarter of 2024.