German economy contracts 0.3% in 2023
THE German economy contracted in 2023, due to persistent inflation, high energy prices and weak foreign demand – but it avoided a recession at the end of the year.
Gross domestic product (GDP) shrank by 0.3 per cent over the full-year 2023, the Federal Statistics Office (FSO) said on Monday (Jan 15).
“Overall economic development faltered in Germany in 2023 in an environment that continues to be marked by multiple crises”, said Ruth Brand, president of the FSO.
The full-year decrease in GDP is in line with the forecast by analysts polled by Reuters.
“Despite recent price declines, prices remained high at all stages in the economic process and put a damper on economic growth,” Brand said. “Unfavourable financing conditions due to rising interest rates and weaker domestic and foreign demand also took their toll.”
The German economy did not continue its recovery from the sharp economic slump experienced in the pandemic year of 2020, Brand said, but GDP was 0.7 per cent higher in 2023 than in 2019, the year before the Covid-19 pandemic hit.
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Economic performance in industry, excluding construction, declined by 2 per cent in 2023, due to much lower production in the energy supply sector, while economic activity in services contributed to growth.
Construction grew modestly by 0.2 per cent in 2023. Deteriorating financing conditions had a particularly noticeable impact in the sector, alongside persistently high building costs and a skilled labour shortage.
Household consumption in 2023 was down by a price-adjusted 0.8 per cent on the previous year and government expenditure fell 1.7 per cent.
The subdued pace of growth of the global economy and weak domestic demand in 2023 also impacted foreign trade, which declined despite falling prices, with imports experiencing a 3 per cent contraction and exports falling 1.8 per cent on the year. This produced a positive balance of exports and imports, which supported GDP.
In the final quarter of last year, the German economy shrank by 0.3 per cent compared with the previous quarter.
The eurozone’s largest economy stagnated in the third quarter compared with the previous three months, following the FSO’s revision.
With the stagnation in the third quarter, the German economy skirted a recession – which is commonly defined as two successive quarters of contraction. REUTERS
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