According to the monthly report from the Bundesbank, Germany’s economy is expected to stagnate for the second consecutive quarter in the three months to September. This continuation of sluggish growth reflects weak foreign demand and tighter financing conditions weighing on the country.
Germany’s economic struggles have been evident for some time now. Following a recession in the winter, where the economy contracted by 0.4% in the final quarter of 2022 and by 0.1% in the first quarter of 2023, the economy remained flat in the three months to June. If these predictions hold true, Germany’s economy will have failed to grow for four consecutive quarters.
The key manufacturing industry in Germany is a significant factor dampening economic activity, but private consumption is helping to stimulate growth. While industrial order intake increased slightly in the second quarter, this was primarily due to large orders. Without these significant orders, both domestic and international demand would have experienced a sharp decline.
Despite these challenges, there are some positive factors at play that may prevent a further weakening of the economy. The high backlog of orders in both industry and construction, combined with easing supply bottlenecks, is providing some stability.
Private consumption is also contributing to Germany’s economic resilience. The Bundesbank highlights stable employment, strong wage increases, and declining inflation rates as factors supporting consumer spending. While German annual inflation fell slightly from 6.2% in June to 6.4% in July, it remains high compared to historical standards. In addition, the country’s jobless rate saw a slight decrease from 5.7% in June to 5.6% in July.
Despite these positive aspects, Germany’s economic outlook still trails behind many of its counterparts. In fact, the International Monetary Fund projected that Germany would be the only G-7 nation to experience contraction this year (by 0.3%). Economists polled by FactSet also anticipate a 0.1% decline in the country’s gross domestic product for 2023.
Ultimately, Germany’s economic performance in the coming months will be crucial in determining if it can break free from this period of stagnation and return to growth.
