The German economy cannot find its way out of stagnation. In the second quarter, there was zero growth in gross domestic product. The main cause for concern is industry. Subdued demand, particularly from abroad, and higher interest rates are having a noticeable impact on sentiment and business expectations. At least the still high order backlog is helping many companies. The economic situation in the services sector is also gloomy, but somewhat less so than in industry. Retail sales are on a downward trend, although they have recently increased again slightly. The consumer climate is still poor, even though it had improved steadily since bottoming out in summer 2022. There are also signs of a slow cooling on the labor market. However, in view of the still widespread shortage of skilled workers, no significant rise in unemployment is to be expected. This is supporting households’ propensity to spend. This is also supported by the gradual decline in inflation and the noticeable nominal wage increases. Another hopeful sign is that business expectations in the service sector have recently brightened somewhat. Nevertheless, the German economy remains in trouble. A strong upswing is not to be expected. Rather a prolonged phase of low or even slightly negative growth rates. Inflation in Germany also remains higher than in comparable economies in the euro zone. For this year, I remain more pessimistic than others and see economic output shrinking by 0.5 percent. Only next year will Germany return to low growth after a recession. Inflation will also not return to two percent until 2024.
If you would like to support my blog posts and economic forecasts, you can subscribe for 5 US dollars per month (or the equivalent amount in your currency). You can unsubscribe at any time:
Or contact me at: info@eagle-economist.com