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In 2020, the German economy contracted due to challenges in energy and exports.
Economy Europe

In 2020, the German economy contracted due to challenges in energy and exports.

Official data released on Monday revealed that the German economy experienced a slight decline in 2023. This was attributed to expensive energy costs, elevated interest rates, and a decrease in foreign demand, which had a negative impact on the export-driven country.

According to initial data from the federal statistics agency Destatis, the output decreased by 0.3 percent compared to the previous year.

In 2023, Germany experienced a decline in economic growth amidst ongoing crises, according to Ruth Brand of the agency who spoke at a press conference in Berlin.

According to initial data, the biggest economy in Europe is expected to have experienced a decrease of 0.3% in its gross domestic output in the last quarter of the year.

The data for the third quarter was also updated, changing the previously reported 0.1% decline to a state of no growth, meaning Germany managed to avoid a technical recession at the end of the year with two consecutive quarters of negative growth.

The economy of Germany has encountered significant challenges due to the conflict in Ukraine, which caused inflation to rise, especially in the energy sector.

The increase in prices were a major factor in the significant decline of Germany’s manufacturing industry, which heavily relies on energy. The construction sector also suffered as a result.

View of the lignite-fueled Schkopau power plant south of Halle, Germany, Jan. 4, 2024.

On January 4, 2024, there was a sight of the Schkopau power plant, which is powered by lignite and located south of Halle, Germany.

Germany’s troubles were compounded by heightened competition from China, previously a dependable market for products bearing the “made in Germany” label, and the implementation of stringent eurozone interest rate increases aimed at controlling inflation.

The sluggish economic results were widely anticipated, as the International Monetary Fund forecasted that Germany would be the sole major advanced economy to not experience growth in 2023.

If the final numbers are verified, the decline in 2023 will mark Germany’s worst year since the economy was hit by the COVID-19 crisis in 2020.

Brand reported that in 2023, prices continued to be elevated throughout the economic process, despite recent decreases, which hindered economic growth.

Poor borrowing conditions caused by increasing interest rates and lower demand from both domestic and international markets also had a negative impact.

Uncertain outlook

The Bundesbank central bank of Germany has predicted a slight growth of 0.4 percent in 2024, indicating a modest recovery.

KfW’s chief economist, Fritzi Koehler-Geib, stated that there is a positive outlook for the economy in 2024.

She mentioned that due to significant increase in wages, private spending is expected to rebound. This, combined with a predicted improvement in export demand, will likely result in growth of the country’s overall economic output.

However, economist Carsten Brzeski from ING bank was not as hopeful. He cited new uncertainty caused by the German government’s recent budget disruption and shipping delays in the Suez Canal due to conflicts in the Middle East.

“Moving forward, during the initial months of 2024, several factors that have hindered growth will likely persist and may have a more significant effect compared to 2023,” stated Brzeski.

He forecasted a decrease in gross domestic product this year, which would mark the first instance of Germany experiencing a two-year recession since the early 2000s. However, it is possible that the recession may be mild.

Worries surrounding the decline in exports and the downturn in the critical manufacturing industry, combined with a persistent lack of skilled workers, are causing concerns about a potential “deindustrialization” in Germany.

The current administration of Chancellor Olaf Scholz, which has been experiencing a decline in public support, has attempted to address these concerns by promising significant investments in renewable energy and infrastructure upgrades.

However, a surprise decision by the court at the end of 2020 created a significant financial deficit in the government’s budget, disrupting their planned expenditures and forcing Scholz and his coalition allies to urgently search for cost-cutting measures.

Farmers were angered by Berlin’s plan to reduce agricultural subsidies, leading them to organize tractor blockades throughout the country. The protest reached its peak with a large demonstration in Berlin on Monday.