Germany confirms economy shrank in Q2

THE German economy shrank by 0.1 per cent in the second quarter, final data confirmed on Tuesday (Aug 27), 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,” pointed out 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-per cent plunge in investments in machinery and equipment, and a 2-per cent fall in investments in construction.

Household consumption was down 0.2 per cent 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.

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While there was no immediate improvement in sight, Brzeski noted that 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 per cent this year, lagging behind the wider eurozone which the European Union predicts will grow by 0.8 per cent.