There is no upturn in sight for the German economy. On the contrary, there is almost surely to be a recession in the second half of 2023. I expect the German economy to contract by 0,8 percent in 2023. I am somewhat more pessimistic for the German industry than some of my colleagues. 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. Industrial production fell further in July. At least the still high order backlog is helping many companies, even if it is shrinking as a trend. As industrial activity is weakening worldwide, no recovery is expected soon.
The situation in the services sector is somewhat better, but here too the situation is gradually becoming gloomier. Retail sales have been declining recently. Although consumer confidence improved somewhat this year, it is still at a low by historical standards. A sustained upward trend it not yet visible. There are also signs of a slow slowdown on the labor market. However, in view of the still widespread shortage of skilled workers, no dramatic rise in unemployment is expected. This is supporting the spending mood of households. The gradual fall in inflation and rising wage settlements could also provide at least some support for private consumption and the German economy in the fall, but not a real boost. I expect inflation to remain elevated in Germany, somewhat more than the consensus forecast. The upswing for the German economy is still a long time coming and is likely to be only tentative in 2024. However, despite all the problems, the German economy still has many strengths, particularly in the industrial sector, which has been battered for some time, and these will come to the fore again when the global economy recovers more robustly.
I expect the Germany economic to contract by 0,8 percent this year followed by a modest recovery in 2024, where I see the growth rate of gross domestic product at 0,6 percent.
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