Germany’s economy contracted by 0.1% in 2023. This means that it is almost certain to have had the worst performance of the G7 club.
The largest economy in Europe has, however, avoided a technical contraction — defined as two consecutive quarters of contraction — over the past year.
According to Destatis (Germany’s statistical agency), the gross domestic product dropped by 0.3% in the last three months of the year. This is worse than the 0% growth recorded in the quarter before. The Ifo Institute in Munich, a respected economics research institute, predicts that the economy will shrink by 0.2% during the first quarter of 2024. This would mean Germany would enter a Technical Recession.
The news did not affect the German stock market much. The Dax index of Germany’s largest companies rose by 0.2%, or 33.63, to close the day at 16,972.34. The dollar was nearly flat at $1.085.
Analysts say that even though Germany avoided the economic definition of recession, it is still experiencing a prolonged downturn due to its adjustment to higher energy prices and the highest interest rates in the eurozone history of 4%.
Carsten Brzeski said that the best way to describe Germany’s economy was probably a “shallow recession”. The economy is stuck in a twilight between stagnation and recession.
The G7 is expected to have the lowest growth rate in 2023, at 0.3 percent. The American economy grew by 3% last year according to figures released last week. Britain’s economy is expected grow by 0.5 percent. Not all G7 countries have yet released their GDP estimates for 2023. The UK fourth-quarter GDP figures are due to be released in early February.
Germany has been driving the European economy since a decade, thanks in large part to cheap Russian gas imports and a devalued euro. The sudden increase in energy prices after Russia invaded Ukraine, and the rising cost of wages, have pushed up production costs, which has put upward pressure on price.
China, which was once Germany’s main export market, has increased its own manufacturing capacity for automobiles and industrial equipment. This has reduced its dependence on German imports. Trade has also been affected by tighter monetary policies globally and high inflation, which have reduced consumer spending power.
Separate figures reveal that Europe’s biggest economies performed much better than Germany in 2017, even though they stumbled in the final months. The French economy grew 0.9 percent last year. However, GDP stagnated in the final three months after recording zero growth during the three-month period ending in September. The Italian economy grew by 0.2% in the last quarter.
The economy of 20 euro-using countries will grow by 0.5% in 2023. This growth is largely due to the strong growth in Spain and Belgium.