As per the Federal Statistical Office of Germany, the nation’s economy shrank by 0.3% in the final quarter of 2023. Investments in construction and machinery also witnessed a significant decline compared to the third quarter of 2023, indicating that the elevated interest rates set by the European Central Bank (ECB) have become a burden on the economy.
Germany’s economy has seen no growth since the early months of 2023 and, on the whole, contracted by 0.3% over the past year.
The largest economy in Europe is encountering challenges as Germany’s industrial sector faces disruptions in the supply of inexpensive energy from Russia and a decline in demand from China. Car manufacturers are also struggling with interruptions in the supply chain across the Red Sea.
Additionally, the real estate market is experiencing difficulties, marked by a decline in property prices and the cancellation of projects by investors, leading to a downturn in the construction sector.
Labor strikes in the railway industry further elevate the risk of a GDP decline in the first quarter of 2024, potentially pushing the country into an officially recognized recession.
According to Carsten Brzeski, an economist at ING, the Germany’s economy is in a “persistent crisis mode”.
“The best way to describe the state of the German economy is probably that it is entering a mild recession. In fact, the economy is still teetering on the edge between recession and stagnation”, he remarked.
Currency markets are indicating an expectation for the European Central Bank (ECB) to initiate interest rate cuts in April, even though President Christine Lagarde stated in last week’s monetary policy meeting that it is premature for policymakers to consider rate reductions.
The International Monetary Fund (IMF) has revised down its growth projection for Germany this year, forecasting a 0.5% GDP increase in 2024, down from the 0.9% predicted in October of the previous year. This marks the most substantial downgrade for any economy within the G7 group.
According to WSJ.
By. Pham Thanh Bien
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