Vying for the Third Place in World Economy, This Country Faces the Risk of Recession in Q1/2024

The German economy, which recently surpassed Japan to become the world’s third-largest, is now facing the possibility of recession in the first quarter of 2024, according to a regular report released by the Bundesbank, the country’s central bank. The weakening growth in consumer spending and low demand for industrial products are continuing to hinder the recovery of the world’s third-largest economy.

It is worth noting that Germany’s GDP in the fourth quarter of 2024 decreased by 0.3% compared to the previous quarter. In theory, a country is considered to be in recession when it experiences two consecutive quarters of negative growth.

Over the past year, Germany has been grappling with rising fuel prices and high borrowing costs. However, recent indicators such as the economic sentiment index from the ZEW Institute and the purchasing managers’ index (PMI) suggest that Germany may have hit rock bottom. Germany’s PMI fell to a five-month low of 41.6 in March.

Despite this, the Bundesbank’s analysis indicates that Germany is not yet poised for a short-term recovery. 2024 is predicted to be a challenging year for the economy, which has long been regarded as the powerhouse of Europe.

“The industrial sector is currently in a weak phase. No significant leap in personal consumption is expected at this time,” the Bundesbank stated.

Both domestic and export orders are currently at a low level, and high interest rates are weakening domestic demand, especially investment. Uncertainty over major issues, such as climate policies, is also causing hesitation among investors.

Nevertheless, inflation is decreasing, and nominal wages are increasing, leading to progress in consumer spending. Inflation is expected to continue to decline in the coming months, although there may be some fluctuations, according to the Bundesbank.

Furthermore, despite the bleak economic prospects, businesses in Germany continue to retain their employees, and the unemployment rate is expected to increase only slightly in the next quarter.

Reuters reports that German companies are struggling to recruit workers as the economy reopens after the pandemic. Therefore, they are retaining employees despite a year of no growth, as the current cost of maintaining the workforce is still lower than when the economy was booming.

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