- German industrial stagnation is worse than expected
- The German situation will have an impact on the EU as a whole
- Pressure on the government grows
German industrial stagnation is worse than expected
According to official data released on Wednesday, continued stagnation in German industry is likely to have led to a further contraction in output in the third quarter, putting the country on the brink of recession.
The Federal Statistical Agency Destatis is due to present its quarterly GDP estimate at 10.00 (09.00 GMT).
The Ministry of Economy said that after a 0.1% contraction in gross domestic product in the second quarter, it now expects "a further slight decline" to be reported again.
A technical recession occurs when the economy contracts for two consecutive quarters.
"It is unlikely that the German economy has picked up after the weak phase recorded in the third quarter," the ministry's autumn forecasts published this month said.
Analysts polled by FactSet were slightly more optimistic and predicted stagnation for this quarter.
The German situation will have an impact on the EU as a whole
Other major European economies are due to release their third-quarter GDP data on Wednesday, with Germany's results likely to hurt the euro area.
Although Germany is generally considered to be the engine of European growth, it has been hit hard by rising energy prices since the outbreak of Russia's war on Ukraine, a sharp rise in inflation, a slowdown in domestic consumption and falling demand for exports.
These difficulties have not come cheaply for the country's vital industrial sector, which accounts for around 20% of Germany's GDP.
"The manufacturing sector is starting to run out of orders," says the latest report from the German Industry Federation BDI.
The BDI forecasts that factory output will fall by three per cent in 2024 compared to the previous year and points out that this will be the "third consecutive decline".
The downturn is particularly pronounced in Germany's main sector, the automotive sector.
"Volkswagen is considering closing at least three plants in Germany and laying off tens of thousands of workers, workers' union leaders told workers this week, as Europe's biggest carmaker faces fierce competition from China, particularly in the electric car sector.
Volkswagen, BMW and Mercedes-Benz all revised their annual forecasts to the negative in September, citing a drop in demand from China.
Pressure on the government grows
Germany's woes are compounded by endless structural challenges, including a complex bureaucratic machine, under-investment in infrastructure, an ageing workforce and the high costs of the transition to green energy.
Chancellor Scholz's government is under increasing pressure to act, but the fragile three-party coalition is at odds over how to turn the economy around.
Last week, Robert Habeck, the Greens' Minister for Economic Affairs, proposed investing billions of euros in German businesses.
But the bellicose Finance Minister Christian Linder was quick to rubbish the idea.
Ch. Lindner of the liberal FDP party is a fierce defender of the debt limits enshrined in the German constitution and is not giving in to calls from other coalition members to relax these rules even a little.
The International Monetary Fund has also intervened in the debate. Alfred Kammer, head of the IMF's European arm, said on Tuesday that Germany needs to invest in public infrastructure and implement a raft of structural reforms.
In an interview with the daily Sueddeutsche, he said, "The debt brakes can be released" to achieve this.
Germany was the only major advanced economy to record a recession in 2023 and the government forecasts that it may also contract slightly in 2024.
However, a recovery is expected as early as 2025, as falling inflation and rising wages should stimulate domestic consumption.
Price growth in Germany slowed to 1.6% in September, the lowest level since 2021.
Based on ELTA reports
