The German economy narrowly avoided a technical recession in the third quarter. The Federal Statistical Office in Wiesbaden confirmed on Tuesday its initial estimate from the end of October, according to which gross domestic product (GDP) remained unchanged compared to the previous quarter. “Economic activity was hampered in the third quarter by weak exports, while investments increased slightly,” explained agency head Ruth Brand.
In the first quarter of the year, GDP had still grown by 0.3 percent, but in the second quarter, from April to June, it fell by 0.2 percent, according to revised figures from the Federal Statistical Office. With this now-confirmed zero growth, the German economy narrowly avoided a technical recession, which, according to the general definition, would have occurred if economic output had declined for the second consecutive quarter.
According to the data, there was an increase of 0.3 percent in fixed asset investment, primarily in machinery, equipment, and vehicles. “This is also reflected in a positive trend in new commercial car registrations,” the statisticians explained. Construction investment, on the other hand, fell by 0.5 percent.
Overall consumption stagnated, with private consumption declining for the first time since the fourth quarter of 2023. “This was partly due to households spending less on restaurants and hotels,” the statisticians explained. Government consumption, on the other hand, rose again, by 0.8 percent compared to the previous quarter. There were no positive impulses from foreign trade.
The crisis in the export industry is “severe and acute,” declared the Institute for Macroeconomics and Business Cycle Research (IMK) of the Hans Böckler Foundation. IMK economic expert Christian Breuer spoke of “massive shocks” from the energy price crisis, US trade policy, and Chinese industry. “Unnecessary debates about austerity” will not help: The crisis “cannot be solved by discussing whether social security cuts can reduce non-wage labor costs by a few tenths of a percentage point.”
“Instead, policymakers in Germany should be providing stimulus in this situation to stabilize domestic demand and avoid uncertainty,” Breuer continued. The funds from the special fund for infrastructure and climate neutrality must now be “accelerated in directing demand- and growth-oriented measures.”
ING analyst Carsten Brzeski sees no improvement in the short term: The combination of tariffs, the current exchange rate, and political tensions and uncertainties will “likely continue to dampen investment and consumption,” he explained. “For this reason, we expect the economy to remain stagnant in the last quarter of the year.” Only after that could the situation change, partly due to “fiscal stimulus.”
AFP – Translated by Blackout News