German Central Bank issues gloomy forecast

The struggling German economy will likely end the first quarter of the year in recession, and is not expected to recover for the rest of 2024, the central bank warned in a monthly report published on Monday.

According to the forecast, the short-term outlook for German industry is “rather gloomy” due to lingering weakness in both internal and external demand. Domestic demand will likely continue to be dampened by increased financing costs, particularly regarding investments. Uncertainty over issues such as climate policy will also continue to weigh on economic activity, the Bundesbank noted.

The bank said industrial output contracted in all sectors in January compared with the final quarter of 2023, largely due to a decline in orders from abroad. Production of motor vehicles saw the largest drop.

Bundesbank analysts predict that private consumption may rise “tentatively” in the first quarter of the year, with consumers still cautious on spending.

“Real gross domestic product will probably decline again slightly in the first quarter of 2024… The German economy continues to experience headwinds from various directions,” the analysts noted, signaling also that there is little evidence of an economic recovery in the second quarter or later in the year.

Germany was the only G7 economy to contract last year. Most analysts have attributed the weak performance to the energy crisis that broke after the start of the Ukraine conflict. Western states placed numerous economic restrictions on Russia, which led to the bloc largely losing access to cheap Russian energy. Germany’s industry-intensive economy was severely hit, falling into recession, according to official data.

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