Official data issued by the Federal Statistical Office (Desatis) on Friday showed that the German economy contracted slightly in the third quarter of 2023.
GDP decreased by 0.1% compared to the second quarter.
“After weak development in the first half of the year, the German economy began the second half of 2023 with a slight contraction,” said Ruth Brand, head of the Federal Statistical Office.
In the first two quarters, economic output virtually stagnated, with the first quarter showing zero growth and the second quarter showing 0.1% growth.
Inflation is at its lowest level in two years
Although inflation fell sharply in recent months to 3.8% in October from 6.1% in August and more than 10% last year, rising prices remained a burden on German consumers over the summer, who appear to be reducing… of their spending.
Consumer spending, which makes up about two-thirds of German GDP, fell 0.3% in the third quarter.
German exports fell by 0.8%, while imports fell more sharply by 1.3%.
The data means that Germany is now one foot into recession. If output contracts in the fourth quarter as well, the economy will have officially entered a technical recession.
Germany’s central bank, the Bundesbank, expects growth to continue to decline in the fourth quarter, but said in a recent statement that “slight growth” will return in the first quarter of 2024.
In support of these expectations, the Munich-based IfO institute said on Friday that its business climate index rose by 0.4 points to 87.3. point compared to the previous month.
The index monitors the mood in German boardrooms through a monthly survey of about 9,000 executives. He’s been climbing for three straight months.
Court ruling threatens growth
Meanwhile, economists are more concerned about a Constitutional Court ruling last week that the German government’s plan to transfer $60 billion of unused pandemic-era debt into its Climate and Transition Fund is unconstitutional.
“If the federal government actually decides to do it [public sector] “Cutbacks to make up for the billions now lost due to the Constitutional Court ruling… To make up for the tax increases, the risk of the German economy contracting again in 2024 increases,” said Sebastian Dulian, director of the Dusseldorf-based IMK Institute.
Dulian warned of the burden on consumption and business investments, and unemployment rates are likely to rise significantly.
Others see the GDP reading as another sign of a further structural slowdown in the German economy.
“Today’s data will do little to end the debate over whether or not the German economy is the sick man of Europe again,” said Carsten Brzeski, chief economist at ING Bank. “In any case, the German economy has become one of the losers in growth in the eurozone.”
mm/ab (dpa, Reuters)