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German recession on cards for Q1 after end-of-year slump

Published 01/30/2024, 04:20 AM
Updated 01/30/2024, 08:35 AM
© Reuters. FILE PHOTO: The sun sets behind the skyline and the European Central Bank (ECB, R) during a warm autumn evening in Frankfurt, Germany, October 1, 2023.  REUTERS/Kai Pfaffenbach/File Photo

By Rachel More

BERLIN (Reuters) -The German economy shrank in the final three months of 2023, prompting economists to warn on Tuesday of another recession as business leaders urged the government to administer a shot of adrenaline to the country's ailing industry.

Gross domestic product contracted by 0.3% in the fourth quarter compared to the previous quarter, the statistics office said.

The German economy shrank by 0.3% over the course of last year, bogged down by persistent inflation, high energy prices and weak foreign demand.

However, because GDP stagnated in the second and third quarters, the euro zone's largest economy was able to avoid another technical recession, commonly defined as two successive quarters of contraction.

This is expected to be short-lived, with the Ifo institute forecasting on Tuesday a 0.2% decline in GDP in the first quarter of 2024.

"Private consumption, on which the optimists are counting, has disappointed right up to the end," said Commerzbank (ETR:CBKG) economist Joerg Kraemer.

"The recent fall in industrial production and the low level of the Ifo business climate indicate that the German economy also contracted in the first quarter," he added.

Alexander Krueger, economist at Hauck Aufhaeuser Lampe, noted that economic output was no higher in Germany than it had been four years ago. "A lack of growth is en vogue in this country," he said.

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The slew of negative data has piled pressure on Chancellor Olaf Scholz's government as it tries to pull off a costly transition towards a greener economy while shielding industry from high production costs and competition from abroad.

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In a joint letter to Scholz dated Tuesday and seen by Reuters, the heads of four leading lobby group appealed to the chancellor for reforms to boost the attractiveness of Germany for industry.

"The German economy is facing major structural challenges," wrote the presidents of the BDI industry association, the BDA employers' association, the DIHK Chambers of Commerce and the ZDH association for skilled trade.

"We urgently appeal to you and the entire federal government to take measures now to spur an economic turnaround in our country," said the letter, which called for cheaper electricity prices, investment in infrastructure and tax reform.

Despite an outlook spelling stagnation at best in the coming quarters, Thomas Gitzel of VP Bank said easing inflation offered a silver lining. The consumer price index is expected to return towards the European Central Bank's 2% target by the middle of the year.

"This will then give European monetary authorities room for manoeuvre to cut interest rates. This will benefit companies and consumers, but above all the ailing construction industry," Gitzel said.

Latest comments

stop this technical recession nonsense ...Germany has been in a deflationary recession for months on end...and it keeps getting deeper
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