The recovery after the Corona crisis only lasted a short time: the German economy slipped into recession last year and is lagging behind internationally. According to preliminary data from the Federal Statistical Office, the gross domestic product (GDP) fell by 0.3 percent in 2023 compared to the previous year, adjusted for prices.
Europe’s largest economy is entering the current year without any tailwind. According to an initial estimate, economic output is likely to have shrunk at the end of 2023. Some economists now fear that GDP will fall again this year. There is a small ray of hope in public finances.
Last year, private consumption failed to provide an important economic support. In view of the significant annual average increase in consumer prices, many people turned their backs. “The energy crisis and geopolitical tensions unsettled producers, investors and consumers,” said the head of the Federal Statistical Office, Ruth Brand, in Berlin on Monday. “World trade lost momentum – with negative consequences for the German export industry.” In addition, increased real estate interest rates slowed down construction. Companies, on the other hand, invested more in equipment, especially vehicles. In 2022, Europe’s largest economy grew by 1.8 percent.
Germany is lagging behind
Germany has nothing to counter weak foreign demand and high interest rates, said VP Bank chief economist Thomas Gitzel. “If the foreign trade headwind blows a little stronger, Germany will collapse. There is a lack of domestic economic dynamism.” People have saved on everyday goods and given priority to their vacation budget. “A certain amount of German consumer spending ended up along the Mediterranean.”
According to statisticians, in an international comparison, the economy in Germany is expected to lag significantly behind the other large EU member states or large economies such as the USA or China in 2023. “Compared to 2019, i.e. the year before the outbreak of the corona pandemic, economic output in Germany rose the weakest compared to the other large EU states,” said head of the authority Brand.
Federal Finance Minister Christian Lindner (FDP) described the economic foundation as strong, “the framework conditions are not yet there”.
Prospects for the current year clouded
According to economists, there are no signs of a sustainable recovery for the time being. Germany is starting 2024 without a tailwind. According to an initial estimate by statisticians, GDP in the fourth quarter, adjusted for prices, seasonal and calendar effects, probably contracted by 0.3 percent compared to the previous quarter.
Many economic researchers recently lowered their forecasts and now expect growth of significantly less than one percent in 2024. According to Martin Moryson, chief European economist at Deutsche Bank fund subsidiary DWS, the only bright spot is the robust labor market. “Employment is increasing and net wages and salaries are growing strongly. This gives some hope that private consumption will support the economy again this year.”
However, some economists are not ruling out another decline in gross domestic product this year. The economy is “likely to experience the first two-year recession since the early 2000s,” said ING chief economist Carsten Brzeski.
The Institute for Macroeconomics and Economic Research (IMK) of the trade union Hans Böckler Foundation sees one of the main causes as the debt brake, which makes important investments in climate protection and infrastructure more difficult. The federal government’s financial policy is likely to become a burden on the economy in 2024, said Sebastian Dullien, IMK scientific director. “Although the German economy is in recession, the federal government is cutting spending and increasing taxes.”
Government deficit somewhat smaller
Last year, the German tax authorities once again spent more money than they took in. According to preliminary data, the federal, state, local and social insurance deficits amounted to a good 82.7 billion euros. That was 14 billion euros less than the previous year, partly because a large part of the spending was spent on combating the corona pandemic. According to the information, the federal government also transferred fewer transfers to the states and social insurance companies, although their financing balances worsened as a result.
After two outliers in the Corona years 2020 and 2021, Germany complied with the European debt rule for the second year in a row: based on total economic output, the deficit was 2.0 percent last year, according to preliminary calculations. In 2022 it was 2.5 percent.
The European Stability and Growth Pact allows EU states to have a budget deficit of a maximum of three percent and a total debt of a maximum of 60 percent of nominal GDP. The rules were temporarily suspended due to expensive Corona aid programs. Shortly before Christmas, the EU finance ministers agreed on reform plans: The plan is for the respective situation of the countries to be taken more into account in the future. (dpa)