German Economy in Recession: 2023 GDP Contracts by 0.3%

Summary

  • The German economy is currently experiencing a recession, confirmed by Ifo president Clemens Fuest.
  • German gross domestic product (GDP) experienced a decline of 0.3% in 2023.
  • 2024 is anticipated to be another year of recession, with the economy only projected to grow by a marginal 0.7%.
  • The country’s construction industry is likewise suffering, with a 7.4% decrease in incoming orders reported in November.

Recession in the German Economy

Ifo president, Clemens Fuest, announced the ongoing recession in the German economy. A contraction in the country’s gross domestic product (GDP) by 0.3% in 2023 underlines this.

Economic Projections for 2024

The fleeting optimism during the previous fall was short-lived, stated ING economist Carsten Brzeski, predicting another minor recession this year of -0.3%. In 2023, Germany dealt with stubbornly high inflation, soaring energy costs, and feeble foreign demand, compounded by a budget crisis that triggered substantial subsidy cuts and discord within the coalition government.

Trade Disruptions and Export Industry Implications

Trade interruptions resulting from Houthi assaults on Red Sea shipping add new worries for Germany’s export industry. This resulted in the composite PMI index dropping consecutively for the seventh month in January. However, according to Klaus Wohlrabe, these issues haven’t resulted in raw materials and primary products supply bottlenecks yet.

Protests and Economic Policies

The beginning of the new calendar year in Germany witnessed widespread farmer protests and nationwide rail strikes, indicating growing dissatisfaction with Chancellor Olaf Scholz’s economic strategies. On a related note, the Ifo recently lowered its growth estimation, predicting a paltry economy rebound of 0.7% in 2024.

The Construction Sector Struggles

There’s equally troubling news for Germany’s property sector as statistics released last Thursday indicated a 7.4% decline month-on-month in incoming orders in the construction industry for November. ING economist Joerg Kraemer of Commerzbank (ETR:) anticipates a similar 0.3% decrease in GDP for this year.

The Prevailing Business Climate

According to a survey of about 9,000 managers, both the current assessment and expectations of the Ifo dimmed in January. “The existing business climate prevents any growth expectations for the current quarter,” stated Alexander Krueger of Hacuk Aufhaeuser Lampe. He further deemed the unfavourable location conditions and disquieting economic policy as significant obstacles.

Given these economic indicators and trends, analysts forecast potential implications for currency markets, particularly with the Euro expected to come under pressure due to the ongoing recession in Germany.

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