Germany is expected to suffer a two-year recession for the first time in two decades after the economy shrank slightly last year, economists warned.
The country’s economy shrank by 0.3% last year, according to official figures from the federal statistics agency Destatis. Costly energy, high interest rates and cooling foreign demand took their toll on the European export giant.
It comes as the country continues to grapple with crippling strikes by irate railway workers angry over wages, as well as an eight-day nationwide protest by farmers unhappy with the removal of fuel subsidies.
“Germany’s overall economic development faltered in 2023 in an environment still characterized by multiple crises,” Ruth Brand of Destatis told a press conference in Berlin today.
Germany, Europe’s largest economy, The agency probably saw a decline in gross domestic production of 0.3% in the last quarter of the year, the agency calculated in preliminary figures.
German farmers are protesting against cuts in car tax subsidies, which they say will paralyze them
People wear safety vests with the text ‘we are the people’
Farmers stand with their vehicles in front of the Brandenburg Gate during a nationwide farmers’ strike in Berlin on January 15
The third quarter data was also revised from a 0.1 percent contraction to stagnation, meaning Germany avoided a technical recession of two consecutive quarters of negative growth at the end of the year.
But ING banking economist Carsten Brzeski was less optimistic, pointing to new uncertainty due to the German government’s recent budget crisis and shipping delays in the Suez Canal due to conflict in the Middle East.
He predicted that gross domestic product would contract again this year, which would be “the first time since the early 2000s that Germany has experienced a two-year recession, even though this could turn out to be a shallow recession.”
“Looking ahead, many of the recent drags on growth, at least in the early months of 2024, will still be present and in some cases have an even stronger impact than in 2023,” Brzeski added.
Others were more optimistic; KfW’s chief economist Fritzi Koehler-Geib expected modest growth of just 0.4%, based on Bundesbank projections.
ING banking economist Carsten Brzeski predicted that gross domestic product would contract again this year, in what would be ‘the first time since the early 2000s that Germany has suffered a two-year recession’
Farmers are protesting against the coalition government’s plan to abolish tax breaks in the agricultural sector
The German economy has faced serious headwinds since Russia’s war in Ukraine sent inflation, especially energy costs, soaring
Anger over Berlin’s proposal to cut some agricultural subsidies prompted farmers to set up tractor blockades across the country last week, culminating in a major demonstration in Berlin on Monday.
“We see a bright spot for the economy in 2024,” she said.
‘Thanks to strong real wage growth, private consumption in particular is likely to pick up again. Together with an expected recovery in export demand, gross domestic product is likely to grow,” she added.
The German economy has faced severe headwinds since Russia’s war in Ukraine sent inflation, especially energy costs, soaring.
The price spikes contributed to a sharp downturn in Germany’s energy-hungry manufacturing sector, while the construction sector was also hit.
Increasing competition from China, once a reliable destination for ‘made in Germany’ goods, and aggressive interest rate hikes in the eurozone to curb inflation further contributed to Germany’s problems.
The weak economic performance was widely expected, with the International Monetary Fund predicting that Germany would be the only major advanced economy not to grow in 2023.
Political figures did little to calm the protesters, with Finance Minister Christian Lindner (pictured, centre) telling a cheering crowd that there was no more money for further subsidies.
Protesters hold up signs during a protest by farmers and truck drivers in Berlin, Germany on January 15, 2024
The weak economic performance was widely expected, with the International Monetary Fund predicting that Germany would be the only major advanced economy not to grow in 2023.
If confirmed in the final figures, the 2023 contraction will be Germany’s weakest year since the coronavirus pandemic ravaged the economy in 2020.
“Despite recent price declines, prices remained high at all stages of the economic process, putting a damper on economic growth” in 2023, Brand said.
‘The unfavorable financing conditions due to rising interest rates and weaker domestic and foreign demand also took their toll.
Concerns about slowing exports and the slump of the crucial manufacturing sector, coupled with a chronic shortage of skilled workers, are starting to raise fears of ‘deindustrialization’ in Germany.
The government of Chancellor Olaf Scholz, whose popularity has fallen in the polls, has tried to counter these concerns with promises to invest heavily in the green energy transition and in modernizing infrastructure.
But a shock court ruling late last year left a multi-billion-euro hole in the government’s budget, upending spending plans and sending Scholz and his coalition partners scrambling for savings.
The government of Chancellor Olaf Scholz, whose popularity has fallen in the polls, has tried to counter these concerns with promises to invest heavily in the green energy transition.
“Despite recent price declines, prices remained high at all stages of the economic process and put a damper on economic growth” in 2023, officials said
“Looking ahead, at least in the early months of 2024, many of the recent drags on growth will still be in place and in some cases have an even stronger impact than in 2023,” a top economist said.
Anger over Berlin’s proposal to cut some agricultural subsidies prompted farmers to stage tractor blockades across the country last week, culminating in a major demonstration in Berlin on Monday.
Political figures did little to calm the protesters, with Finance Minister Christian Lindner telling a jeering crowd that there was no more money for further subsidies.
“I cannot promise you more state aid from the federal budget,” Lindner told the crowd, adding, “But we can fight together to give you more freedom and respect for your work.”
‘With the war in Ukraine, peace and freedom in Europe are once again threatened, so we must invest in our security again, just as before.’
The protests began after the government decided to phase out the tax break on agricultural diesel as it tries to balance its 2024 budget following a constitutional court ruling in November that forced it to revise its spending plans.
