Germany avoids recession as concerns over powerhouse economy linger

Economists predict minimal growth in the first half of 2024, a year that’s kicked off with train strikes and countrywide protests by German farmers.

Germany continued to dodge a recession in the wake of the energy crisis, despite shrinking in 2023 and this year set to bring only a meagre rebound.

GDP fell 0.3% between October and December, according to preliminary estimates, but with the previous three months revised slightly higher, Europe’s largest economy avoided two straight quarters of contraction.

It was nevertheless a tough year: GDP also shrank 0.3% over the full 12 months — the first such downturn since the pandemic. It’s a stark contrast to peers around the globe — it probably was the only Group of Seven economy to contract — and one that’s raising questions about the country’s future as an industrial powerhouse. 

Ongoing concerns about Germany’s prospects are reflected in expectations for this year. The OECD said in November that, at 0.6%, growth would be the slowest among all Group of 20 members except Argentina. 

Economists predict minimal growth in the first half of 2024, a year that’s kicked off with train strikes and countrywide protests by farmers.

Analysts at Deutsche Bank, Commerzbank, and at ING even see output continuing to shrink over the whole of 2024. Survey-based indicators have yet to signal improvement and industrial production is increasingly affected by declining order intake, according to Commerzbank’s Joerg Kraemer. 

Initial feedback from polls “suggests that economic performance is likely to stall in 2024”, according to the industry lobby DIHK Chambers of Industry and Commerce. 

Even remaining in recession is still possible. The economic challenges remain great.

Germany, the first in the G7 to report a fourth-quarter GDP estimate, had been singled out by forecasters in 2023 as the biggest weak spot among the world’s major developed nations. 

That’s largely due to its manufacturing sector reeling from higher energy costs, surging interest rates and subdued foreign demand. 

The German central bank has acknowledged challenges to a business model that was long based on Russian energy imports and a strong reliance on China — both for components and as a market for combustion-engine cars. 

• Bloomberg