Economy: Positive start to the year – hope for economic recovery

Economy: Positive start to the year – hope for economic recovery

The start of the year gives hope: the German economy is growing again. However, according to economists, fundamental problems have not been solved.

After slight economic growth at the beginning of the year, an end to the economic downturn in Germany seems to be in sight. “After GDP declined at the end of 2023, the German economy started 2024 with a positive sign,” explained the President of the Federal Statistical Office, Ruth Brand, on Friday. However, economists do not expect Germany to make any major leaps this year. They point, among other things, to structural problems such as the shortage of skilled workers.

According to statisticians, gross domestic product (GDP) rose by 0.2 percent in the first quarter compared to the previous quarter. The authority confirmed preliminary figures. Germany was thus slightly below the EU average of 0.3 percent. Things went much better in Spain, with an increase of 0.7 percent. In France (0.2 percent) and Italy (0.3 percent), economic output grew by a similar amount compared to the previous quarter as in Germany.

Construction investments and exports support in the first quarter

Growth in Europe’s largest economy at the start of the year was driven by increased construction investments (up 2.7 percent) and an increase in exports thanks to mild weather. Private consumer spending, an important pillar of the economy, fell by 0.4 percent compared to the previous quarter, adjusted for price, seasonal and calendar effects, despite the declining inflation. According to the information, consumers cut back on food and clothing, among other things.

Hopes for the coming months are nevertheless resting on private consumption in view of increased wages and weaker inflation. Lower inflation rates can stimulate the desire to consume. The Institute for Macroeconomics and Business Cycle Research (IMK) of the trade union Hans Böckler Foundation recently identified indications of an “impending turnaround in consumption” based on a survey of 9,600 participants.

Structural weaknesses slow the pace of recovery

The chief economist of the state development bank KfW, Fritzi Köhler-Geib, assumes that the German economy will probably grow in every quarter this year, “and at an increasing pace from the middle of the year onwards due to the increasing breadth of the economic upturn.”

However, economists do not expect a strong upturn for the year as a whole. “Germany’s well-known structural weaknesses will not disappear overnight and will slow the pace of recovery,” said ING chief economist Carsten Brzeski. Business associations point to high energy and personnel costs, a shortage of skilled workers and excessive bureaucracy. In addition, there is a high tax burden compared to other countries.

Slight growth expected after recession in 2023

The “economic experts” recently expected that the development of the German economy in the current year would be characterized by weak overall economic demand. The German Council of Economic Experts is only expecting gross domestic product to increase by 0.2 percent for the year as a whole. The federal government is somewhat more optimistic, with an expected economic growth of 0.3 percent.

Last year, Germany slipped into a slight recession with a price-adjusted decline of 0.2 percent. Europe’s largest economy felt the effects of the global economic slowdown as well as the temporarily high energy prices and the rapidly rising interest rates.

Source: Stern

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