Companies are holding back on investments, construction is in the doldrums, and demand for “Made in Germany” is weakening. The coming months are not likely to be easy for Germany either.
The German economy is entering a difficult phase in the coming months without tailwind. Gross domestic product (GDP) shrank by 0.3 percent in the fourth quarter of 2023 compared to the previous quarter, adjusted for price, calendar and seasonally. The Federal Statistical Office confirmed preliminary data. “In the final quarter, declining investments slowed down the economy, while consumption increased slightly,” said authority boss Ruth Brand. Economists expect the weakness to continue for the time being.
Economic output is likely to fall slightly again in the first quarter of 2024, according to the Bundesbank’s latest monthly report. If GDP shrinks for two quarters in a row, economists speak of a technical recession. That doesn’t mean the full year is negative. However, Germany as a whole had already slipped into recession in 2023. GDP shrank by 0.3 percent.
At the end of 2023, investments in buildings fell compared to the previous quarter. Construction is suffering from increased interest and costs. Companies also invested less in equipment such as vehicles and machinery in the fourth quarter. Exports suffered from weaker demand from abroad. In contrast, consumer spending rose by 0.2 percent due to lower inflation.
Hopes for a strong economic recovery this year have now dwindled. The federal government only expects mini-growth of 0.2 percent. “We are emerging from the crisis more slowly than hoped,” said Economics Minister Robert Habeck when presenting the annual economic report this week.
The national deficit is shrinking
There was a ray of hope in public finances. Last year the tax authorities once again spent more money than they took in. However, the federal, state, local and social insurance deficits fell by 9.5 billion euros to 87.4 billion euros compared to the previous year, partly because a large part of the expenditure to combat the pandemic was omitted.
The federal government had the biggest loss of 79 billion euros. According to the information, declining federal transfers and ongoing financial burdens to care for refugees contributed to the fact that the states (6.4 billion euros) and municipalities (12.1 billion euros) also had financing deficits. In the previous year, they had each achieved surpluses. In contrast, social insurance (10 billion euros) recorded a slight increase in the financing surplus.
Based on total economic output, the deficit was 2.1 percent. The Federal Office initially assumed 2 percent. In 2022 it was 2.5 percent. Because of the Federal Constitutional Court’s budget ruling, the federal government is still forced to make savings.
Germany complies with debt rules
After two outliers in the Corona years 2020 and 2021, Germany complied with the European debt rule for the second year in a row, which allows EU states to have a budget deficit of a maximum of three percent.
The rules were suspended because of the Corona aid programs. Representatives of the European Parliament and the governments of the EU member states recently agreed on a reform. In particular, the plans stipulate that the individual situation of countries will be taken more into account when setting EU targets for reducing excessive deficits and debts.
Source: Stern
