Dhe German economy slipped into recession last year. According to preliminary data, the gross domestic product (GDP) fell by 0.3 percent in 2023 compared to the previous year, adjusted for prices, as the Federal Statistical Office announced on Monday. High inflation slowed private consumption, an important economic support. In 2022, Europe's largest economy grew by 1.8 percent. According to economists, the outlook for the current year has deteriorated. Some fear a decline in economic output in 2024 as well.
According to an initial estimate by the Federal Office, the German economy shrank in the fourth quarter of 2023. According to previous findings, GDP fell by 0.3 percent quarter on quarter after price, seasonal and calendar adjustment, as head of the authority Ruth Brand announced in a press conference in Berlin.
Forecasts for 2024 lowered
In 2023 as a whole, private consumption failed to support the economy. In view of the significantly increased consumer prices, many people turned down the red pencil. According to preliminary data, the annual average inflation rate was 5.9 percent. This was the second highest value since reunification after an average inflation rate of 6.9 percent in 2022. Foreign trade made a positive contribution because imports fell even more sharply than exports. Construction investments fell significantly within a year.
Numerous economists do not expect a sustained recovery in Europe's largest economy this year either. Many economic researchers recently lowered their forecasts and now expect growth of significantly less than one percent.
Some economists do not rule out a further decline in gross domestic product. The Institute for Macroeconomics and Business Cycle Research (IMK) of the trade union Hans Böckler Foundation sees one of the main causes as the debt brake, which makes important investments in climate protection and infrastructure more difficult. The ruling of the Federal Constitutional Court on November 15th is forcing the traffic light coalition to save money and restricting its financial leeway.
Last year, the German tax authorities once again spent more money than they took in. According to preliminary data, the federal, state, local and social security deficits amounted to a good 82.7 billion euros.
Nevertheless, after two outliers in the Corona years 2020 and 2021, Germany complied with the European debt rule for the second year in a row: based on total economic output, according to preliminary calculations, the deficit was 2.0 percent last year. In 2022 it was 2.5 percent.
The European Stability and Growth Pact allows EU states to have a budget deficit of a maximum of three percent and a total debt of a maximum of 60 percent of nominal GDP. The rules were temporarily suspended due to expensive Corona aid programs. Shortly before Christmas, the EU finance ministers agreed on reform plans: The plan is for the respective situation of the countries to be taken more into account in the future.
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