Europe’s largest economy is once again on the brink of a recession, as weak consumer spending and a bleak manufacturing outlook painted a sorry picture on the continent and widened its gap with the U.S.
Germany’s real GDP declined 0.1% in the third quarter of 2023 compared to the previous quarter, according to data released by the country’s stats body. The economy was 0.3% weaker than in the same quarter last year.
The decline was driven by a fall in consumer spending, according to the Federal Statistics Office. However, investment in equipment by German companies did help lift manufacturing growth.
Germany is now at risk of falling into a technical recession, defined as two consecutive quarters of negative GDP growth. The country’s economy has stagnated this year, registering flat growth during 2023.
Oliver Rakau, chief German economist at Oxford Economics, told Fortune that the data was actually slightly better than expected—but still not encouraging:
“However, while this news is slightly encouraging, it doesn’t change the big picture of a stagnant or slightly contracting economy,” Rakau said.
“And the little information that the statistical office has released on the GDP composition isn’t too encouraging either.”
Rakau elaborated that while the increase in capital investment was notionally good news, the consultancy worries it was due to one-off spending on military equipment by the German government.
Oxford Economics expects the German economy to decline again next quarter and officially enter a recession.
Poor outlook
While manufacturing GDP rose in Germany last quarter, the outlook for future growth isn’t good. The latest PMI survey of German companies indicated manufacturing output continued to decline, registering a figure of 41.4 in October. Any number below 50 indicates a contraction rather than an expansion in activity.
Services output also declined to a two-month low, according to the survey data.
“Germany is kicking off the final quarter on a sour note,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank. “The HCOB Composite Flash PMI is still stuck in the red this October and even slipped a notch from last month. Therefore, there is much to suggest that a recession in Germany is well underway.”
There are fresh concerns when looking at the country’s demand for oil, a key bellwether for wider economic activity.
Data shared with Bloomberg by the International Energy Agency (IEA) showed German demand for oil was expected to decline by around 90,000 barrels a day this year, the steepest among the OECD group of rich nations, and representing a sizable 4% annual reduction.
Ciaran Healy, an oil market analyst at the IEA, told Bloomberg in an interview that only Pakistan was forecast to endure a steeper decline in oil demand this year among the countries tracked by the agency.
It’s the latest sign of an impending recession in Germany, though perhaps no bad thing for the country’s inflation reading, which came in at 3.8% in October. The World Bank predicted prices for oil could reach $150 a barrel if global tensions escalate as a result of the war between Israel and Palestine.
Europe in trouble
Germany’s stagnant position is setting the tone for the rest of Europe, where months of high interest rates and inflation have taken their toll on consumers and businesses. Falling demand from China has also weakened the continent’s once envious manufacturing sector, led by Germany.
Economic growth in the European Union, comprised of 27 major economies, rose by just 0.2% in the second quarter of this year, according to Eurostat. Preliminary figures for France show GDP rose just 0.1% in the third quarter of this year.
Speaking to Bloomberg following the release of Germany’s figures, France’s Finance Minister Bruno Le Maire called for a fresh wave of investment to lift the continent out of the doldrums, particularly in AI.
“European growth is too weak, investments are insufficient,” Le Maire told reporters. “We need a European economic awakening.”
Le Maire added: “Europe invests 10 times less than the U.S. on AI, we need to do more and much faster.”
Indeed, the figures in Europe are in stark contrast to those in the U.S. Economic growth barrelled ahead in the States at an annual rate of 4.9% in the third quarter. Households appear in much better condition ahead of the holiday season as disposable income and savings both rose, while retail spending also jumped.
However, it’s not all been bleak for Europe.
Analysis by European think-tank Bruegel shows the EU has closed the gap with the U.S. in terms of GDP per person over the last two decades, as smaller economies that joined the bloc enjoyed the benefits of an economic union.
Source : Yahoo
