- German economy shrinks slightly in second quarter
The German economy is stuck in place. The gross domestic product fell by 0.1 percent in the second quarter, as reported by the Federal Statistical Office in Wiesbaden based on preliminary data. This means that the economy must withstand another setback after a brief uptick at the beginning of the year. The statisticians cited weak investments as the reason.
Last year, Germany slipped into a slight recession with a price-adjusted decline of 0.2 percent. The export-oriented German economy felt the cooling of the global economy, as well as the soaring energy prices and rapidly rising interest rates. Moreover, there is a shortage of skilled workers and companies are complaining about too much bureaucracy.
"Bloodless Growth"
The unexpected decline in gross domestic product once again shows that there is no talk of significant growth in Germany, wrote Commerzbank chief economist Jörg Krämer. "The threefold decline in the Ifo business climate and the weakness of other economic indicators suggest at best a bloodless growth for the second half of the year." The easing of the previous interest and energy price increases has so far hardly been reflected in an economic recovery.
A swift recovery is not in sight for the current year. In the first quarter, Europe's largest economy only grew by 0.2 percent. And economists expect only minimal growth for the entire year: For example, the Council of Experts for the Assessment of Overall Economic Development expects a plus of 0.2 percent - still less than the federal government's forecast (0.3 percent).
There is plenty of headwind for the German economy: China, the growth driver on the world markets, has lost momentum, and the number of company insolvencies is increasing domestically. A first interest rate cut by the European Central Bank in June has not yet brought any significant improvement for the German economy.
Tail-lighter among the G7
The International Monetary Fund predicts only 0.2 percent growth for Germany in 2024 - the lowest rate among the leading Western G7 industrialized countries. In comparison, the IMF expects a plus of 3.2 percent for the world economy. A debate about the location of Germany has long been underway.
Important sectors are also struggling: While the chemical industry is suffering from comparatively high energy prices, the automotive industry is grappling with the transition to e-mobility, and the construction industry has slowed down after the real estate boom. To support the economy, the federal government has introduced relief measures for companies, including improvements in tax depreciation and an expansion of the research allowance.
Ifo Index does not bode well
The latest indicators also point only to a weak recovery this year. The mood in the economy has unexpectedly deteriorated further. The Ifo business climate index fell again in July - the third consecutive decline of the most important German economic barometer. "The German economy is stuck in the crisis," commented Ifo President Clemens Fuest.
At least: The Bundesbank expects a somewhat stronger economy for the current third quarter. Robustly rising wages, which support private consumption, a waning inflation, and a robust labor market should contribute to this. However, the weakness in demand for industrial products has not yet been fully overcome.
Growth in economic output could therefore lag slightly behind the expectations of the central bank from June. At the time, the currency guardians had forecast growth of 0.3 percent for the entire year. It is not until 2025 that the central bank expects prospects to improve, with a forecast of 1.1 percent growth for the German economy.
Communication Destatis GDP Q2/2024 Annual Calendar GDP Germany Q1/2024 Central Bank Monthly Reports
The German Federal Bank will likely monitor the economy closely, given the predicted 0.2% growth for Germany in 2024, which is the lowest among the G7 countries according to the International Monetary Fund. The German Federal Bank's expectations for the German economy in the third quarter of this year are slightly stronger due to robustly rising wages, waning inflation, and a robust labor market, despite the lingering weakness in demand for industrial products.
