Economists complain about “headwinds”
The risk of recession in Germany is increasing again
September 19, 2023, 7:47 a.m
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Economists are concerned about the weakening economy. “The German economy continues to lack growth impulses,” says Peter Hohlfeld from the Institute for Macroeconomics and Economic Research. This has consequences for the likelihood of a recession in this country.
According to a study, the already high risk of recession in Germany has increased again. The probability of this increased to 74 percent between September and November, as the trade union-affiliated Institute for Macroeconomics and Economic Research (IMK) announced. At the beginning of August it was still 71.5 percent for the following three months.
The indicator, which works according to the traffic light system – which bundles data on the most important economic indicators – is still in “red”, signaling an acute risk of recession. “The German economy continues to lack growth impulses,” said IMK expert Peter Hohlfeld. “There are still headwinds coming from almost all directions.”
According to the institute, the fact that the risk of recession is not receding suggests that the expected consumption-driven recovery is being delayed and will probably not begin until the end of the year. Wage increases in the second quarter of 2023 were able to compensate for the loss of purchasing power due to inflation for the first time in more than a year. However, since price inflation is only slowing down, real wage growth remains subdued. A thorough recovery in private consumption is therefore not yet underway, according to the IMK. At the same time, production in energy-intensive industries is suffering from persistently high energy prices, said Hohlfeld.
ECB interest rate hike likely to hit construction industry
The situation in the construction industry is likely to worsen further following the further interest rate hike by the European Central Bank (ECB) and increasing financing costs for property developers. The German export industry is also confronted with sluggish foreign demand, particularly from China and the USA. “Under these circumstances, industry production as a whole is currently at best stagnant,” said the institute.
According to the Bundesbank’s forecast, the economic crisis in Germany will continue. “Economic output is likely to shrink slightly in the third quarter of 2023,” says the current monthly report. This would extend the phase of no growth in Europe’s largest economy once again: gross domestic product had already shrunk at the end of 2022 and the beginning of 2023 before it stagnated in the spring. In August, the Bundesbank estimated that the economy would largely stagnate in the summer.