It is confirmed that the German economy has entered recession in 2023, with a decline in gross domestic product (GDP) of 0.3%, the Destatis Institute suggested on Monday. This expected decline in GDP of Europe’s largest economy follows growth of 1.8% in 2022, according to data adjusted for price variables.
Note, in the last quarter of 2023, according to preliminary estimates from Destatis, GDP is projected to decline by 0.3% compared to the previous quarter. In data adjusted for calendar and price variables, annual GDP fell 0.1%. However, the results are slightly better than forecasts by the government and the IMF, which forecast a decline of 0.4% and 0.5% respectively during the year.
Worse than the EU average
Still, the news is worrying. According to the European Commission’s latest forecast, the country is doing significantly worse than the EU average, with significant increases for France, Spain and Italy, which should reach 0.6% growth in 2023. The world’s third-largest economy lags behind other major industrialized countries such as the United States or the United Kingdom.
” Global economic growth remains stagnant in an environment marked by crises, particularly the energy crisis and geopolitical tensions. », commented Ruth Brand, President of the Destatis Institute.
Energy crisis
At the core of the contraction of Europe’s largest economy: a crisis in its powerful industrial sector, which represents about 20% of the country’s manufactured wealth. Nearly four years after the start of the Covid-19 pandemic, a combination of factors has resulted in production remaining more than 9% below its pre-pandemic level.
The sector was initially depressed throughout the year due to subdued domestic demand due to inflation and interest rate hikes by the European Central Bank (ECB). Indeed, for the whole of 2023, inflation in Germany rose to 5.9%, after 6.9% in 2022, which was the highest value since the oil shock of 1973. On the other hand, prime rates initially went from 0%. 4-4.75% today from 2022, increase in cost of debt.
The sector was also penalized by less dynamic exports, against a backdrop of geopolitical tensions and lower demand for German products in China and the United States. But above all, energy prices remain relatively high for the industry compared to its international rivals. Some of the most energy-intensive activities, such as chemicals, are struggling to return to their pre-war production levels in Ukraine. ” The year 2023 has been turbulent, with the economy in a perpetual state of crisis », summarizes ING Bank analyst Carsten Brzeski.
unemployment and the budget crisis
And the effects of the recession are already beginning to show. In trouble, companies hire less andUnemployment in Germany is rising and is now approaching 6%. Its rate, in fact, reached 5.9% last December, an increase of 0.1 points from the previous month (which was revised downward to 5.8%). In other words, the number of unemployed rose by 5,000 in a month in seasonally adjusted data (CVS). In raw data, the number of unemployed rose to 2.64 million, an increase of about 31,000 in a month and 183,000 compared to December 2022, the employment agency detailed in early January.
Tensions in the ruling coalition
Hence the government has a central role in keeping the economy going, but here again, crises follow one another. As a reminder, the German Constitutional Court canceled in mid-November the transfer of 60 billion euros of unused credit from the pandemic to an envelope dedicated to green investments and support for industry.
She believed that Olaf Scholz’s government violated strict budgetary rules by making this reallocation of spending. Consequently, the 2023 and 2024 budget had to be reviewed. The decision caused a split in the German government coalition between the three parties, the left parties (social democrats and ecologists), in favor of increasing public spending, and the Liberal Party (FDP), in favor of austerity.
But after several weeks of tension and tough negotiations, the three sides reached an agreement on Wednesday, December 13, according to government sources with AFP. Details of the agreement are not known at this time, but a press conference is planned for midday.
A recession that could extend into 2024
If 2023 was particularly bleak for Germans, 2024 may not be any better if we are to believe the IW Economic Institute. The latter actually calculates a decline in gross domestic product (GDP) of 0.5% in 2024 for the leading European power. Experts have revised their forecast significantly since last September, still expecting growth of 0.9%.
“2024 could be a year of recovery for the German economy. But the general condition remains bad.This Wednesday, December 13, Halle judges the institute.
The IW’s forecast, however, is more pessimistic than the German government’s. The latter predicts a resumption of growth next year to +1.3%. For its part, the International Monetary Fund (IMF) forecasts a rebound of 0.9% for German growth. The coming recovery will be favored by a gradual decline in inflation – to 2.6% in 2024, then 2% in 2025, compared to an average of 6.1% this year – and expectations of a strong labor market.
” Thanks to rising real wages, private consumption should pick up again. With the expected recovery of exports, GDP is expected to increase “,” says Fritzi Köjler-Geib, president of the public bank KfW.
Exports rose by +3.7% between October and November 2023, adding to hopes significantly, seasonally adjusted data (CVS) indicated in a press release on January 8 to the Statistical Office Destatis. This was above the forecast of economists polled by the Reuters agency, who had expected an increase of +0.3%. Above all, the increase ends a four-month decline in the index, although, in a year, it remains down 5%. Now we just have to wait for the December figures.
(With AFP and Reuters)
