German economy shrank in Q1
Sluggish private consumption and drop in industrial investments hit growth
The German economy shrank by 0.1 percent in the second quarter, final data confirmed Tuesday, weighed down by sluggish private consumption and a drop in industrial investments. “After the slight increase in the previous quarter, the German economy slowed down again in spring,” said Ruth Brand, head of federal statistics agency Destatis.
The quarter-on-quarter contraction confirmed an initial estimate released by Destatis at the end of July, which surprised analysts who had been expecting a small uptick in growth in Europe’s largest economy. The April-to-June period noticeably saw a 4.1-percent plunge in investments in machinery and equipment, and a two-percent fall in investments in construction.
Household consumption was down 0.2 percent on the previous quarter, as were exports amid weak foreign trade. Germany, traditionally a driver of European growth, was the only major advanced economy to shrink in 2023 as it battled high inflation, an industrial slowdown and cooling export demand. A recovery was initially expected to get under way at the start of 2024, but a string of disappointing data in recent months has suggested the rebound will take longer than initially thought.
“The German economy is currently back where it was a year ago: stuck in stagnation as the growth laggard of the entire eurozone,” ING bank economist Carsten Brzeski said. The gloomy outlook was highlighted in the closely watched Ifo survey on Monday, which showed a further deterioration in business confidence in August — particularly among companies in the manufacturing sector.
While there was no immediate improvement in sight, Brzeski said there was “some optimism for the second half of the year” as robust wage growth could yet encourage German consumers to spend more in the months ahead. The German government expects the economy to expand by a modest 0.3 percent this year, lagging behind the wider eurozone which the European Union predicts will grow by 0.8 percent.
German consumers are feeling more pessimistic heading into September, a key survey showed Tuesday, as concerns about jobs and wages add to a gloomy outlook for Europe’s largest economy. The survey of around 2,000 people showed that consumer morale “suffered a severe setback” compared to a month earlier, according to pollsters GfK and the Nuremberg Institute for Market Decisions (NIM).
The forward-looking indicator fell by 3.4 points to minus 22 points for September, they said in a statement. The “euphoria” triggered by the European football championship hosted by Germany in July “dissipated after the tournament ended”, said NIM consumer expert Rolf Buerkl.
“Slightly rising unemployment figures, an increase in corporate insolvencies, and downsizing plans by various companies in Germany are causing a number of employees to worry more about their jobs,” he said. “Hopes for a stable and sustainable economic recovery must therefore be further postponed.” The survey found that respondents were “noticeably” more downbeat about their wage prospects for the coming 12 months, and less likely than a month ago to make large purchases. Consumers’ assessment of Germany’s economic outlook also worsened, erasing last month’s gains. The darker mood comes after preliminary data showed that the German economy unexpectedly shrank in the second quarter, weighed down by cooling exports and an ongoing industrial slump.
Another closely watched survey, by the Ifo institute, showed on Monday that German business morale deteriorated further in August, particularly among companies in the manufacturing sector. The German government expects the country’s economy to expand by 0.3 percent in 2024, lagging behind the wider eurozone which the European Union predicts will grow by 0.8 percent.