Germany in a downturn: economic output shrank in the summer

Germany in a downturn: economic output shrank in the summer

In the spring, leading economic experts were still optimistic. But recently the German economy has not gained momentum. However, the situation could improve next year.

The German economy did not gain momentum in the summer either. The gross domestic product (GDP) fell slightly by 0.1 percent in the third quarter compared to the previous quarter after price, season and calendar adjustments, as the Federal Statistical Office announced in an initial estimate on Monday in Wiesbaden. Economists and the federal government recently expected that Europe’s largest economy will also shrink for the year as a whole before things start to pick up again in 2024.

According to the latest data, economic output grew slightly in the spring (plus 0.1 percent), but stagnated at the beginning of the year. Private consumer spending in particular fell in the summer, as the statisticians reported. On the other hand, positive impulses came from companies’ investments in equipment, for example in vehicles.

Headwind for the economy in Germany

High inflation is putting a strain on consumers. They can afford less for their money. Many people are limiting their consumer spending. “Despite the decline in inflation, we expect private consumption to emerge from its doldrums only gradually as consumer confidence remains subdued,” Deutsche Bank economists analyzed. The inflation rate fell to 4.5 percent in September after 6.1 percent in August. Food prices once again rose above average.

There is also headwind from increased interest rates. These are depressing demand for construction services, among other things. At the same time, the German export industry is feeling the effects of the weakness of the global economy.

After all, the mood in the German economy improved in October for the first time in six months. Both the current situation and expectations were assessed better, as shown by the Ifo business climate index. “The German economy sees a silver lining on the horizon,” commented Ifo President Clemens Fuest.

Economic forecasts lowered

Leading economic research institutes expect gross domestic product to shrink by 0.6 percent in 2023 as a whole. In the spring, the institutes had assumed a mini-growth of 0.3 percent. The German economy is expected to grow by 1.3 percent next year.

The federal government now expects economic output to decline by 0.4 percent in 2023. Federal Minister of Economics Robert Habeck believes that the bottom has now been reached. “We have reached a bottom, we are leaving the valley and then things will go up again,” said the Green politician recently. Growth of 1.3 percent is also forecast for 2024.

Gross domestic product (GDP) shows how well or poorly a country’s economy is developing. Everything that is produced within a certain period of time is included. In addition, the value of services and the spending of consumers as well as investments by companies – for example in machines – are included. All economic sectors are taken into account. The largest item is private consumption. Another component is the so-called external contribution – i.e. the difference between what companies sell abroad (exports) and buy from there (imports).

Source: Stern

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