The Bundesbank released its latest monthly report on Feb. 19, the key points of which are as follows.
Economic Growth
Real GDP growth almost stagnated in the first three quarters of 2023 and contracted by 0.3% in the fourth quarter. The German economy faces many challenges including weak external demand, sluggish consumer spending, and depressed domestic investment. Some headwinds will probably persist into early 2024 and economic output “may decline again somewhat” in the first quarter..
Factors such as a strong labor market and slowing inflation will provide some support to the German economy. There is no evidence of a recession in the sense of a persistent, broad-based and distinct drop in economic output.
Labor Market
The prolonged economic weakness has so far had only a mild impact on the labor market. There are no signs that the weak economy will cause the labor market to worsen significantly or there will be a significant rise in employment.
Wages and Prices
The wage agreements for 2024 and 2025 will result in strong wage growth. The general shortage of labor provides favorable conditions for the forthcoming agreements of higher wages. However, the weak economy and expectations that inflation will fall further may dampen the renegotiated wage agreements to some extent.
Germany, the euro area’s largest economy, saw its GDP shrink by 0.3% in the fourth quarter of last year from a quarter earlier and in 2023 from a year earlier, making it the world’s worst-performing major economy. However, its third-quarter GDP was revised upward from negative to zero, so it avoided a technical recession.
