German economy shrinks in Q4

According to an initial estimate by the Federal Statistical Office, German GDP contracted by 0.3% in the fourth quarter.

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Dr Jörg Krämer

Commerzbank Economic Research

January 15 2024

Unfortunately, leading indicators are not yet signaling a turn for the better. This suggests that GDP will continue to contract in the first quarter. We expect a further contraction of 0.3% for 2024 as a whole. It is worrying that the German economy has barely grown since the outbreak of the coronavirus. This is rare and reminiscent of the years following the bursting of the stock market bubble at the start of the millennium.

As expected, the German economy contracted by 0.3% last year. More importantly, the Federal Statistical Office said that fourth quarter GDP was likely to have contracted by 0.3% compared with the third quarter. The office will publish a regular flash estimate on 30th January.

No improvement in sight yet

With statisticians reporting that real GDP stagnated in the third quarter, rather than falling as previously reported, the usual international definition of a recession has not yet been met. However, there are still no signs of a turn for the better. Sentiment indicators such as the Ifo business climate remain in recession territory. The recent slump in new orders is increasingly having an impact on industrial production, as surveys suggest that companies have largely worked through the backlog of orders from the coronavirus period. Meanwhile, industrial production is also on a downward trend. All this suggests that the German economy is likely to contract further in the first quarter. The poor starting position is an important argument for our forecast that GDP will contract again in 2024 (-0.3%). We therefore remain more cautious than the average economist and see certain downside risks to our forecast.

Stagnation since the end of 2019

Since autumn 2019, i.e. shortly before the outbreak of the coronavirus, the German economy has basically stagnated (chart). This is unusual and reminiscent of the years following the bursting of the stock market bubble in 2000. While companies then suffered from overinvestment and high debt levels, the economy is now weighed down by a new interest rate regime, the prospect of persistently high energy prices, a fading tailwind from China and a long-term erosion in the quality of Germany as a business location. Companies have a lot to digest at the moment, which does not bode well for a significant recovery once the recession is over.