Germany, Europe’s largest economy, contracted last year

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CNN
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Official data showed on Monday that the German economy contracted last year for the first time since the outbreak of the Covid-19 pandemic, raising the risk of economic contraction in the broader euro zone.

GDP fell by 0.3% in 2023 compared to the previous year, according to the German Federal Statistical Office (Destatis).

“Germany’s overall economic development faltered in 2023 in an environment still characterized by multiple crises,” Ruth Brand, president of Destatis, said in a statement.

Although inflation has subsided, prices remain high throughout the economy and are a drag on the economy She added growth. “High interest rates and weak domestic and foreign demand also had an impact.”

GDP also decreased in the fourth quarter by 0.3% compared to The previous quarter, according to preliminary estimates by the Census Bureau. This followed a period of recession in the three-month period to the end of September, meaning Germany very narrowly avoided a recession in the second half of the year, defined as two consecutive quarters of falling GDP.

This data does not bode well for the entire region that uses the euro, because Germany is the largest among its 20 economies.

A poll published by the World Economic Forum on Monday, coinciding with its annual meeting in Davos, Switzerland, showed that more than three-quarters of economists We expect “weak or very weak growth” in Europe in 2024.

More than half of economists surveyed from November to December expect the global economy to weaken this year.

Saadia Zahidi, managing director of the World Economic Forum, said the survey “highlights the risky nature of the current economic environment.”

The euro zone is a case in point: output there contracted slightly in the third quarter of 2023. Figures for the fourth quarter, expected on January 30, will confirm whether the region has slipped into recession towards the end of the year.

The decline in German GDP reflects weakness across the economy, but especially in the country’s huge manufacturing sector, which has been hurt by faltering Chinese demand, rising energy costs, and painful hikes in interest rates.

In this sector, automobile production and other transportation equipment manufacturing recorded growth last year, but production declined in energy-intensive chemical and metallurgy industries. Overall, industrial production, dominated by manufacturing, contracted by 2%, according to Destatis. Exports decreased by 1.8%.

Household and government spending also fell, for the first time in nearly 20 years. “This is primarily due to the cessation of state-funded anti-coronavirus measures, such as vaccinations and compensation paid to hospitals for free beds,” Destatis said.

Finishing off 2023, Europe’s largest economy got off to a rocky start this year, with a three-day national rail strike over wages and hours causing travel chaos last week. The unrest was exacerbated by farmers blocking highways and other roads in protest against the government’s plans to reduce fuel subsidies.

Farmers gathered for a final demonstration in Berlin on Monday in a rally organized together With the German trucking industry.

Government spending cuts will This is impacting Germany’s economic growth this year, according to Andrew Kenningham, chief European economist at Capital Economics.

“The recessionary conditions that have persisted since the end of 2022 appear to persist,” he wrote in a note on Monday. “We expect zero GDP growth in 2024.”

The silver lining in German economic data was employment, which grew by a record 0.7%, or 333,000 people, compared to 2022, meaning the total number of people in work. To 45.9 million. According to Destatis, foreign workers and more locals joining the workforce were lagging behind the increase. This “compensates for the dampening effects” of Germany’s aging population, the statistics office said.

Stephanie Halas contributed reporting.