Berlin, Germany – The German economy continues to face challenges as new data indicates that the country’s industrial sector is still in recession. According to Holger Schmieding, chief economist at Berenberg Bank, industrial production declined by 1.6% in December and was down overall by 1.5% compared to the previous year. Additionally, exports, which are a major pillar of the German economy, fell by 4.6% in December and 1.4% across the year.
However, there seemed to be a glimmer of hope as factory orders data reflected an 8.9% increase in December compared to November. Despite this, Franziska Palmas, senior Europe economist at Capital Economics, pointed out that this growth was largely thanks to large-scale orders, which tend to be volatile. Excluding large-scale orders, factory orders actually fell to a post-pandemic low, indicating a more nuanced economic picture.
Although the most recent Purchasing Managers’ Index report showed some improvement, with an increase to an 11-month high, it is still below the 50 line that divides growth from contraction. As a result, some experts believe that economic growth is not imminent and that the German industry is still far from the pre-pandemic levels.
In fact, Commerzbank Chief Economist Jörg Krämer forecasted that the German economy will shrink by 0.3% in 2024, in line with the previous year’s contraction. These projections are due to a variety of factors such as global rate hikes, high energy prices, and an erosion of Germany’s position as a business location. Additionally, weakening export figures and political risks at the national and international level may further contribute to the economic challenges facing Germany.
The German coalition government is also under pressure due to a budget crisis caused by a decision from the constitutional court, which left a significant hole in the coalition’s budget plans. Furthermore, voter satisfaction with the government is low, with the opposition party currently leading in the polls.
Overall, the outlook for the German economy remains uncertain, with various challenges both domestically and internationally contributing to the ongoing economic struggle.