- The German economy is ending the year in a weak state, according to Ifo institute president Clemens Fuest.
- Recently, the Ifo institute revised downward its 2024 growth forecasts for the German economy from 1.4% to 0.9%.
- Germany saw a business sentiment decline in December, which follows the trend seen in Composite PMI results.
- The German fiscal situation has been impacted, especially after a court ruling led to a significant shortfall in the 2024 budget.
- A consecutive drop in quarters’ GDP figures indicates signs of a technical recession.
- Experts anticipate a continued economic stagnation in 2024 reflecting the rising interest rates, fiscal tightening and a sluggish job market.
Germany’s Economic Outlook
The German economy continues to remain feeble as the year concludes, accurately recognized by Clemens Fuest, the Ifo institute’s president.
Last week, the Ifo institute downgraded its 2024 growth forecasts for the German economy to 0.9% from 1.4%.
Impact of Fiscal Challenges on German Economy
Recent fiscal complications have exerted a visible impact on the German economic landscape. As ING’s global head of macro, Carsten Brzeski stated, Germany’s leading economic indicator reveals the challenges in rejuvenating its economy.
Budget Deficiency and Its Effects
The German government confronted the need to curtail spending to fill a €17 billion gap that emerged following a constitutional court’s decision regarding unspent pandemic emergency funds.
Business Sentiment Downturn and Economic Recession
The fall in business sentiment in December parallels the message revealed by the Composite PMI, emphasizing a deepening economic recession in Germany.
Consequently, both service and manufacturing sectors witnessed contraction, this reflecting the overall dip in business satisfaction. Companies’ perception of their business situation diminished, with the benchmark indicator dropping to 88.5 from 89.4 in November.
Forecasts indicate a slightly regressing GDP in the fourth quarter, following an already observed shrinkage in the third. This marks a technical recession, a condition defined by two consecutive quarters of negative growth.
Outlook For The Future
Andrew Kenningham, Capital Economics’ chief Europe economist, asserted likely prospects of the German economy stagnating in 2024. Such predicament reflects the impact of a myriad of factors including higher interest rates and their effect on the construction and industrial investment, fiscal tightening, and continued consumer alertness amidst a weakening job market.
In the context of forex trading, this precarious economic outlook for Germany may add to investors’ concerns and potentially influence their decisions. Volatility could be introduced particularly in assets tied to Germany, such as the Euro, German government bonds, and major German equity indices.