Germany's economy shrank by 0.3% in 2023, aligning with analysts' predictions. The Federal Statistical Office reported that when adjusted for calendar effects, the decline was 0.1%. This economic contraction was attributed to high inflation and increased interest rates.
Ruth Brand, president of the federal statistics office, noted that Germany's economic growth stalled in 2023 due to ongoing crises. She highlighted persistent high prices across all economic sectors, unfavorable financing conditions from rising interest rates, and reduced domestic and foreign demand as key factors.
German inflation rose by 3.8% year-on-year in December, based on harmonized data. The European Central Bank maintained steady interest rates in December, adjusting its inflation outlook from "expected to remain too high for too long" to a gradual decline anticipated over the next year.
Household consumption decreased by 0.8% year-on-year, adjusted for inflation, while government spending reduced by 1.7%.
The fourth quarter saw a 0.3% decline compared to the previous quarter. The German economy remained stagnant in the third quarter, narrowly avoiding a technical recession, defined as two consecutive quarters of GDP decline.
A German economy ministry report released Monday suggested that early indicators do not point to a quick economic recovery. Capital Economics predicts ongoing challenges for Germany, forecasting zero growth in 2024.
Andrew Kenningham, Chief Europe Economist, stated that recessionary conditions are likely to persist, with potential contractions in residential and business investment, a downturn in construction, and tighter fiscal policies.
Throughout much of 2023, Germany was labeled the "sick man" of Europe, despite managing to cope with the loss of some sanctioned Russian energy supplies following Moscow's invasion of Ukraine. Analysts had predicted Germany would be the only major European economy to contract last year.
Late in 2023, Germany faced a severe budgetary crisis when a constitutional court ruling on national borrowing restrictions threatened a 17-billion-euro gap in the country's 2024 spending plans. The national dept brake, part of Germany's constitution, limits the federal deficit to 0.35% of GDP outside emergencies and became a contentious political issue. The government agreed to suspend the borrowing limit after the court blocked attempts to reallocate leftover emergency funds initially designated for the Covid-19 pandemic response. After weeks of negotiations, a bugget deal was reached that maintains dept restrictions into 2024. The government plans to save 17 billion euros in its core budget by eliminating climate-damaging subsidies and implementing cost-cutting measures, as announced by Chancellor Olaf Scholz's coalition in mid-December.
0 Comments