As a result of low external demand, cautious consumers, and high borrowing costs impeding domestic investment, Germany is most likely currently experiencing a recession, the Bundesbank stated on Monday in its customary monthly assessment on the continent’s largest economy.

Germany’s massive, industry-heavy economy is currently experiencing its fourth consecutive quarter of zero or negative growth, which is a burden on the entire euro zone. Germany has struggled since Russia’s invasion of Ukraine in 2022 drove up energy costs.

“There is still no recovery for the German economy,” the Bundesbank said. “Output could decline again slightly in the first quarter of 2024. With the second consecutive decline in economic output, the German economy would be in a technical recession.”

Due to its poor performance, many have questioned whether the German economic model can continue, while others contend that an economic revolution is necessary because a large portion of the country’s energy-intensive heavy industry is currently being priced out of global markets.

On the other hand, the administration has disputed the dire predictions, saying that the situation is simply a perfect storm of high oil prices, poor Chinese demand, and fast inflation that momentarily halts growth without calling into doubt the fundamentals of economic strategy.

As things stand today, the Bundesbank says, the downturn will continue.

The order backlog is decreasing and there is a downward trend in foreign industrial demand.
The central bank said that businesses are also delaying investment, in part due to the substantial increase in financing costs following the European Central Bank’s record-high interest rate hike in an effort to battle inflation.

Firms are being impacted by the high nominal wage rise, and strikes in important industries like transport could have an adverse effect on growth this quarter.

However, the Bundesbank stated that a disruption in Red Sea shipping would not have a major effect since there is ample spare capacity in the shipping industry and because freight expenses make up a small portion of the total cost of commodities.

Despite the dire prognosis, the bank stated that it does not anticipate a significant decline in the labour market, which has so far protected the economy, and that Germany is not in the midst of a widespread, protracted recession.

“The weak phase in the German economy that has been ongoing since the beginning of the Russian war of aggression against Ukraine will thus continue,” the bank added.

(Adapted from TheDailyStar.net)

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