German economy shrinks in 2023 – and little sign of a turnaround
The German economy last year contracted for the first time since the pandemic as it was struck by “multiple crises”, new figures reveal.
According to provisional estimates from Destatis, GDP dropped 0.3 per cent in 2023 as the economy struggled with inflationary pressures, high borrowing costs and weak demand for its exports.
The figures could be subject to significant revisions, since it does not have detailed data for December, but reflects the first estimate for Germany’s performance across 2023 as a whole.
Ruth Brand, president of Destatis, said that economic development in Germany “faltered…in an environment that continues to be marked by multiple crisis”.
“Despite recent price declines, prices remained high at all stages in the economic process and put a damper on economic growth. Unfavourable financing conditions due to rising interest rates and weaker domestic and foreign demand also took their toll,” she added.
Economic performance in Germany’s industrial sector recorded a very poor year with output falling two per cent. This was largely due to lower production in the energy supply sector.
While the services sector saw expansion, it was at a weaker rate than in the previous two years with retail activity taking a hit.
Analysts argued that there was little to look forward to in 2024 either, raising the possibility that Germany would once again become the ‘Sick Man of Europe‘.
“Many of the recent drags on growth will still be around and will, in some cases, have an even stronger impact than in 2023,” Carsten Brzeski at ING said.
Brzeski pointed to the “unfolding” impact of the ECB’s interest rate hikes, the potential disruption to trade from military conflict in the Red Sea and the likely slowing of the US economy in 2024.
Andrew Kenningham, chief Europe economist at Capital Economics, drew a similar conclusion pointing to the government’s tight fiscal policy and the “steep downturn” expected in the construction sector this year.
“The recessionary conditions which have been dragging on since the end of 2022 look set to continue this year,” he said.