Germany's economy is seen shrinking in 2023 due to persistent inflation, high energy prices, and weak foreign demand. Even so, Germany managed to avoid the risk of recession at the end of the year.
Gross Domestic Product (KDNK) or GDP shrank by 0.3% throughout 2023, according to the Federal Statistics Department on Monday.
"The overall economic development will stop in Germany in 2023 in the face of the risk of multiple crises," said Ruth Brand, manager of the statistics department, on Monday in Berlin. The decline in GDP throughout the year was in line with forecasts by analysts whose views were shared by Reuters.
"Despite the recent drop in prices, prices remain high at all levels in the economic process and have a negative impact on economic growth," said Brand. "Unfavorable financial conditions due to rising interest rates and weak domestic and foreign demand are also having an impact."
"The recessionary conditions that have been lingering since the end of 2022 look set to continue this year," said Andrew Kenningham, chief European economist at Capital Economics.
The recent decline in inflation should provide some relief to households, but housing and business investment are likely to shrink, construction is headed for a downturn, and the government is tightening fiscal policy significantly, Kenningham said, predicting zero GDP growth in 2024. .
Economic performance in industry, excluding construction, declined by 2.0% in 2023, due to much lower production in the energy supply sector, while economic activity in services contributed to growth. Construction experiences moderate growth of 0.2% in 2023. Deteriorating financial conditions have had a significant impact on the sector, in addition to continued high construction costs and a shortage of skilled workers.
Household consumption in 2023 fell by a price-adjusted 0.8% from the previous year, and government spending fell by 1.7%, according to the data.
Slow global economic growth momentum and weak domestic demand in 2023 also impacted foreign trade, declining despite lower prices, with a 3.0% decline in imports and a 1.8% decline in exports over the year. This results in a positive gap in exports and imports, which supports GDP.
