The German economy continues its period of stagnation and slight decline. It has not grown since the spring of 2022. After the German economy contracted slightly in the third quarter of 2023. My guess is that the initially reported contraction (-0,1%) could be further revised downward. The economic outlook for the current fourth quarter remains subdued. I still expect the recession to continue. Overall, I am a bit more pessimistic for the German economy than some of my colleagues. The weakening global economy, the European Central Bank’s interest rate hikes and higher energy prices continue to weigh on the German economy. In addition, the already high geopolitical risks have increased once again with the brutal terrorist attack by Hamas and Israel’s military response.
There are no signs of a tentative improvement in the economic situation until the new year at the earliest. The industrial sector is likely to have more or less bottomed out, after the situation had previously deteriorated more and more. Incoming orders have recently increased and business expectations have risen slightly. This raises hopes of a gradual upturn. However, dynamic growth is not to be expected for the time being, partly because weak external demand is likely to continue to weigh on export-oriented German industry and higher interest rates are dampening investment.
As in previous months, the situation in the services sector is somewhat better and business expectations have recently brightened more than in industry. The gradual decline in inflation and rising nominal wages should increasingly support people’s spending mood. Low unemployment is also having a stabilizing effect. So far, the situation on the labor market has cooled only slightly despite the subdued economic development. Even though companies have become less willing to hire, demand for labor has remained robust in view of the widespread labor shortage. Services are thus being supported; however, strong growth is not to be expected. Retail sales continued to weaken recently. Overall, the German economy is proving resilient in the face of the many headwinds. However, there are many structural problems. More bureaucracy, a deteriorating infrastructure, unattractive tax rates and high energy prices are weighing on the German economy. The German economy has barely got off the ground since spring 2022. Even if there are signs of a gradual upturn, strong economic growth is not yet in sight. Overall, I am a bit more pessimistic for the German economy than some of my colleagues.
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