German Q4 GDP declined, no improvement in sight

The 0.3% quarterly decline in Q4 German GDP is not an outlier.

Dr.Jörg Krämer

Commerzbank Economic Research

January 30 2024

The decline in industrial production and the low level of the Ifo business climate indicate that the German economy will also contract in the first quarter. Private consumption, on which the optimists are counting, has disappointed. Companies and consumers simply have too much to cope with, given the new interest rate regime, inflation fears, the erosion of Germany's attractiveness as a business location and the fading tailwind from China. There is no strong upturn in sight.

As indicated by the Federal Statistical Office just over a fortnight ago, German real GDP contracted by 0.3% in the fourth quarter compared with the third. According to the statisticians, there was a significant drop in construction and business investment. Figures for the demand components will be published on 23rd February.

Economy also likely to shrink in the first quarter

The German Federal Statistical Office has revised the rate of change in GDP for the third quarter upwards from -0.1% to 0.0%. Thus, GDP did not decline for two consecutive quarters and therefore does not meet the definition of a recession. However, there are signs of a renewed contraction in output in the first quarter. This is suggested by the downward trend in industrial production, the recent decline in new orders and the low level of the Ifo business climate.


Private consumption, on which the optimists are counting, has disappointed. As the epochal slump in the Gfk consumer climate shows (chart 1), there is no prospect of a rapid turnaround for the better. Consumers are deeply unsettled, and not only because high inflation has eroded their inflation-adjusted incomes. They also seem to fear the future in general ("Zukunftsangst")

Stagnation since autumn 2019

Companies also have a lot to cope with because of higher interest rates, the prospect of persistently high energy prices, the long-term erosion of Germany as a business location or the fading tailwind from China. These negative factors are unlikely to disappear any time soon. This argues against a significant recovery once the recession is over. German GDP, which has been stagnating since autumn 2019, will probably only move sideways with fluctuations for a few more quarters. This is reminiscent of the years after the stock market bubble burst in 2000, when the economy did not grow significantly for four years.