Germany, how did 2023 end? Recession avoided, but the crisis is profound

Germany narrowly avoids recession, but confirms its deep economic crisis in 2023, according to the German Federal Statistical Office.
Gross domestic product fell 0.3% between October and December, according to a preliminary estimate on Monday.
But with the previous three months revised upwards from 0.1% to 0%, Europe's largest economy avoided two consecutive quarters of contraction (signaling a technical recession).
However, it was a difficult year: GDP fell by 0.3% over the 12 months, the first decline of this type since the pandemic.
It is a report that stands in stark contrast to other economies around the world – Germany was probably the only Group of Seven economy to contract – and raises questions about the country's future as an industrial power.
Is Germany no longer a power? The 2023 budget In 2023, overall economic development in Germany has faltered in a context that continues to be characterized by multiple crises: these are the words of Ruth Brand, president of the German statistical office.
The nation, the first in the G7 to report a fourth-quarter GDP estimate, has been identified by experts as the weakest among the world's major developed countries in 2023.
The reasons for this weakness were largely linked to the manufacturing sector which is reeling from rising energy costs, rising interest rates and weak foreign demand.
Although the year began with relief that the energy shock triggered by Russia's war in Ukraine would be more manageable than initially feared, the economy lost momentum and never really started to grow again.
The recovery expected in the second half of the year did not materialize, with activity remaining fragile despite falling inflation.
Germany's manufacturing sector, excluding construction, slipped a sharp 2%, led by lower production in the energy supply sector.
Last year's weak domestic demand and "subdued global economic dynamics" also stifled foreign trade, despite falling prices.
Imports fell 1.8%, more sharply than exports.
As the data shows, in 2023 household consumption fell by 0.8% compared to the previous year and public spending fell by 1.7%.
Germany, more than other European countries, found itself – and still finds itself today – facing the epochal and no longer postponable task: adapting a business model that has long been based on imports of Russian energy and on a strong dependence on China, both for components and as a market for combustion engine cars.
What to expect in 2024? Germany remains in crisis Capital Economics predicts that Germany's problems are not over yet and does not estimate any growth for the country in 2024.
“The recessionary conditions that have been dragging on since the end of 2022 look set to continue this year too,” he said.
Chief European Economist Andrew Kenningham said in a note.
“True, the recent fall in inflation should provide some relief to households, but residential and business investment is likely to contract and construction is heading for a sharp downturn, while the government is sharply tightening policy tax.
We expect zero GDP growth in 2024." “Some take comfort in the fact that the economy is 'just' stuck in stagnation and has avoided a more severe recession.
But this should not be a reason for complacency,” said Carsten Brzeski, global head of macro at ING.
Looking ahead, at least into early 2024, many of the recent curbs on growth will still be present and, in some cases, will have an even stronger impact than in 2023, the economist said.
“The risk that 2024 will be another recession year is high,” Brzeski added.
According to Commerzbank chief economist Joerg Kraemer, it is worrying that the German economy has hardly grown at all since the coronavirus outbreak.
“This is a rare event and brings back memories of the years after the stock market bubble burst at the turn of the millennium.” Martin Ademmer, economist, on Bloomberg highlighted that growth will accelerate slowly in 2024 and reach 0.5% during the year as higher real incomes could give a boost to household consumption.
However, the recent setback in business expectations highlights the risk that more pronounced industry weakness will cause the slowdown to continue into the first quarter of 2024.