Germany slipped into recession in 2023, the country’s Federal Statistical Office (Destatis) said on Monday. Based on initial calculations, Destatis said that Germany’s gross domestic product (GDP) fell by 0.3 percent year-on-year, with global crises weighing on the economy.
Europe’s largest economy did “not continue its recovery from the sharp economic slump experienced in the pandemic year of 2020,” said Destatis president Ruth Brand. In 2022, GDP still grew by 1.8 percent.
“Despite recent price declines, prices remained high at all stages in the economic process and put a damper on economic growth,” Brand said, adding that “unfavorable financing conditions due to rising interest rates and weaker domestic and foreign demand also took their toll.”
Inflation in Germany gradually weakened last year, but picked up again at the end of the year, to 3.7 percent in December. Compared to other European countries, consumer prices in the country normalized slowly, as the average value for the eurozone was already 2.9 percent last month.
Food prices in particular continued to rise at above-average rates, and were still up 4.5 percent at the end of last year. Although real wages rose, consumption remained subdued.
Consumers “still have major worries,” said Rolf Buerkl, consumer expert at the Nuremberg Institute for Market Decisions (NIM), last month. In addition to geopolitical crises and “sharply rising” food prices, discussions about the national budget for 2024 “continue to cause uncertainty.”
Following the failed reallocation of COVID-19 relief funds for climate measures, the German government wants to consolidate this year’s budget through massive savings. Large investments in the green transformation will be cut, while areas such as agriculture and social benefits will also suffer.
For weeks, farmers in Germany have been protesting against the planned abolition of agricultural subsidies with traffic blockades. On Monday, thousands of farmers with tractors gathered in the capital of Berlin. Minister of Finance Christian Lindner was booed when he tried to calm the protestors.
According to experts, the government is also facing further problems relating to cuts in social benefits. The budget for 2024 stands on “legally more than shaky ground,” said the Confederation of German Employers’ Associations (BDA).
In view of the budget problems, a number of economic institutes have already lowered their forecasts for the current year, and some are even predicting a deeper slide into recession. “With these poor economic prospects, Germany stands alone among the major countries,” said the German Economic Institute (IW).
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