German economy will shrink in the 4th quarter due to the impact of energy price shock

Bundesbank’s November report on the economy has been published. The report stated that difficult conditions continued in the German economy and noted that the economy continued to be negatively affected by the consequences of the previous energy price shock and weak demand from abroad.

“Rising financing costs continue to constrain private investment and thus domestic demand for industrial goods and, in particular, construction services,” the Bundesbank report said. It was emphasized that production in sectors such as automobile manufacturing, which previously had a supportive effect on the industry, showed a sharp decline.

The report reminded that the economy shrank by 0.1 percent in the summer quarter (July-September) and stated that “economic production is likely to decline slightly again in the fourth quarter of 2023.”

While there are some signs that the German economy may improve early next year, the recovery in Europe’s largest economy will be challenging, according to the bank. His report still forecast cautious optimism for next year, citing high employment, strong wage growth and stabilizing economic confidence.

The report stated that increasing financing and construction costs continue to put heavy pressure on the demand for construction services, and emphasized that the possibility of a short-term recovery in the construction sector is not yet on the horizon.

The Bundesbank predicted, “The annual inflation rate is likely to fluctuate horizontally in the coming months.”

Meanwhile, the German economy shrank by 0.1 percent in the third quarter of the year compared to the previous quarter due to weak purchasing power and high interest rates. If the German economy shrinks in the last quarter, it will technically be in recession, having contracted for two consecutive negative quarters.

On October 11, the government updated its growth expectation, which was previously announced as 0.4 percent for this year, to minus 0.4 percent due to the stagnation in the global economy.

The International Monetary Fund also reduced its growth expectation for Germany from minus 0.3 percent to minus 0.5 percent, reporting that Germany would be the only developed country to shrink this year.