Germany’s economic output fell by 0.3 percent in the final quarter of last year, official figures have confirmed.
A UK-based expert has pointed out that the country formerly regarded as Europe’s economic powerhouse is now technically in recession – in marked contrast to the UK.
Data published by Destatis, Olaf Scholz-led Germany’s Federal Statistical Office, confirmed the drop, with a spokesman explaining: “After the German economy more or less stagnated in the first three quarters, economic performance decreased in the fourth quarter of 2023.
“Compared with the previous quarter, there was a marked decline, in particular, in gross fixed capital formation in construction and in machinery and equipment after price, seasonal and calendar adjustment.”
Destatis also reported that price-adjusted GDP fell by 0.3 percent in 2023, although after price and calendar adjustment, the decline amounted to 0.1 percent.
GDP is also down 0.4 percent compared with the same quarter a year ago.
Sharing the Destatis report on X, formerly Twitter, Julian Jessop, Economics Fellow at the Institute for Economic Affairs (IEA), commented that “early surveys for 2024 [are] also poor”.
He added: “By the way, if you want to be super-picky, Germany is in #recession on the ‘two successive quarters’ definition – using the unrounded data!”
Mr Jessop also discussed Germany’s economic woes in an op-ed published on his website this week.
He explained: “Two leading business polls this week are already indicating that Germany is mired in recession.
“The latest HCOB PMI survey, compiled by S&P Global, signalled that activity in services and manufacturing was still contracting in January.”
He pointed out: “In contrast, the equivalent UK PMI index rose to a seven-month high and has been above the ‘neutral’ 50 level for three successive months.
“The leading national survey, compiled by Germany’s IFO institute, also showed that sentiment among German companies deteriorated further at the start of the year.
“The weakness was broadly based, with retail trade and construction under the cosh too. The IFO’s own ‘Business Cycle Traffic Lights’ model is flashing red, for recession.”
Part of the problem could be traced back to what Germany’s over-reliance on “cheap Russian oil and gas to make expensive goods to sell to China”, Mr Jessop suggested.
However, he added: “There is a lot more to it. The German auto sector has only just started to recover from a series of shocks since 2016, including the emissions scandals, the enforced transition to electric vehicles, flawed ‘green energy’ policies, and the supply disruptions caused by the pandemic.
“Both monetary and fiscal policy are playing a role too. It is no surprise that Germany’s weakest sector is construction, which is particularly sensitive to higher costs and higher interest rates. German house prices have already fallen by about 10 per cent in a year.”
At the same time, Germany’s exceptionally strict budget rules provided very little room for manoeuvre, Mr Jessop pointed out.
Staunch Brexiteer Mr Jessop continued: “German inflation has been quicker to fall in the UK, but then so was wage growth, meaning that the squeeze on real incomes was similar.
“UK consumers can at least look forward to further falls in inflation, some additional help in the March Budget, and bigger cuts in interest rates
“Whatever our own economic challenges – and there are many – the UK is at least starting the year on the front foot, while the EU is stumbling. Tying us every closer to a failing economic bloc surely cannot be the best way forward.”
