German economy stagnates in Q2 after winter recession

4:34 am Friday, August 25th, 2023

BERLIN (Reuters) -Germany’s economy stagnated in the second quarter from the previous three months, showing no sign of recovery from a winter recession and cementing its position as one of the world’s weakest major economies.

The figure of zero growth for the second quarter was in line with a first estimate published in late July. Year on year, adjusted GDP contracted by 0.2% in the second quarter.

Quarter on quarter, economic activity had fallen by 0.4% in the fourth quarter of 2022 and by 0.1% in the first quarter of 2023. Two consecutive quarters of contraction fulfills the technical definition of a recession.

“Both the short-term and the longer-term outlook for Germany looks anything but rosy,” said Carsten Brzeski, global head of macro at ING.

Weak purchasing power, thinned-out industrial order books, a slowdown in the Chinese economy and the impact of the most aggressive monetary policy tightening in decades all point to weak economic activity in Germany going forward, Brzeski said.

Household consumption showed zero growth in the second quarter from the first and government spending rose by 0.1%. Capital investment also grew modestly while exports fell 1.1%, Friday’s data showed.

Pantheon Macroeconomics forecasts GDP will post a 0.2% contraction in the third quarter, before a rebound of 0.4% quarter on quarter in the last quarter of the year. That would mean that German GDP falls by 0.2% year on year in 2023.

“If our forecasts for the rest of the big four eurozone economies are correct, this means Germany will be the worst performing among them,” said Melanie Debono, senior Europe economist at Pantheon Macroeconomics.

The Bundesbank expects economic output to remain largely unchanged in the third quarter, according to a monthly report published on Monday.

A resilient labour market, strong wage increases and declining inflation should boost private consumption, but industrial production will remain weak due to sluggish foreign demand, the report said.

(Reporting by Maria Martinez, Editing by Friederike Heine, John Stonestreet and Christina Fincher)