Germany’s economy tipped into the red last year as energy costs, high interest rates and slowing foreign demand weakened its industrial strength and exports.
The gross domestic product (GDP) of Europe’s largest economy fell by 0.3% in 2023, after an increase of 1.8% in 2022, according to data corrected for price variables unveiled Monday by the National Statistics Office Destatis.
In data adjusted for calendar and price variables, annual GDP falls by 0.1%.
These results are certainly a little better than the forecasts of the government and the IMF, which respectively predicted a contraction of the German economy of 0.4% and 0.5% for 2023.
But the country is doing significantly worse than the EU average, which is expected to reach growth of 0.6% in 2023, according to the latest forecasts from the European Commission, with marked increases for France, Spain and Spain. ‘Italy.
The world’s third largest economy is also lagging behind other major industrial countries, such as the United States or the United Kingdom.
The end of the year was even worse than previous quarters with GDP estimated to decline by 0.3% between September and December, according to a preliminary estimate from Destatis.
“Turbulent” year
Expected, this recession nonetheless remains bad news for the government of Olaf Scholz, already struggling with record unpopularity and a multiplication of social demands.
“The year 2023 has been turbulent, with the economy in permanent crisis mode,” comments Carsten Brzeski, analyst for ING bank.
The German economy is weighed down by the crisis in its powerful industrial sector, which represents around 20% of the wealth produced in the country.
Production remains more than 9% below its pre-COVID-19 pandemic level.
The sector has been slowed by sluggish domestic demand, due to inflation – which reached 5.9% in 2023 – and interest rate hikes from the European Central Bank (ECB).
According to Destatis, private consumption fell by 0.8% over one year. Construction particularly suffered, with a 2.1% decline in investments.
The industry was also penalized by less dynamic exports, against a backdrop of geopolitical tensions and weaker demands for “made in Germany” in China and the United States.
Above all, energy prices remain high for German industry compared to its international competitors. Chemistry, particularly affected, produced 8% less in 2023 over one year, which translated into a 12% drop in revenues, according to industry data.
Reprise ?
Still, the German economy should begin to recover this year, according to forecasts.
The government expects growth of 1.3% in 2024, the International Monetary Fund (IMF) expects growth of 0.9%.
“With the decline in inflation, the rise in real wages and a gradual recovery in the global economy, the factors weighing on the economy should ease and a recovery should begin,” the Ministry of Finance said on Monday. the Economy.
Exports have already seen an improvement at the end of the year, with an increase of 3.7% in November, after four months of decline.
But some experts doubt a rapid rebound, while interest rates are not expected to fall significantly this year, nor are energy prices.
“For 2024, there will be no improvement. Germany has fallen into stagnation,” according to Jens Oliver Niklasch, analyst for LBBW bank.
“It is possible that we will remain in recession this year. The challenges are immense,” commented the Chamber of Industry and Commerce (DIHK) on Monday.
The country also faces structural challenges, such as a lack of labor, an aging population and a lack of investment that could continue to hamper growth.
Especially since a resounding ruling from the Constitutional Court in November canceled 60 billion euros of investment credits in the name of constitutional budgetary rules.
This decision forced the government of Olaf Scholz to cut back on certain expenses. According to the economic institute IFO, these budget cuts should cost Germany 0.2 points of growth in the coming months.