The year of economic challenges in Germany may conclude with a double-dip recession.

16 Oct, 2023

The year of economic challenges in Germany may conclude with a double-dip recession.

Germany, long seen as Europe's economic engine, is unlikely to escape a second recession this year, driven by persistent industrial weaknesses, according to economic forecasters. The country's gross domestic product (GDP) shrank by 0.2% in the third quarter, and it is expected to contract by a further 0.1% before the end of 2023, as indicated by a Bloomberg survey of economists. The forecasts suggest a frail recovery afterward.

Dennis Huchzermeier, a senior economist at the Handelsblatt Research Institute in Duesseldorf, pointed to "several structural problems" leading to weak economic growth. He predicts a shrinkage of the German economy this year and "lackluster growth" in the coming years. The collective outlook suggests Germany will have experienced five consecutive quarters without any economic expansion.

Germany's economic challenges, coupled with sluggish Chinese export demand and an energy crisis, have set it apart as a drag on Europe's economy. This situation has drawn comparisons to the 1990s when Germany was labeled as the "sick man" of the region.

Forecasts indicate that Germany's GDP will decline by 0.4% in 2023 and is expected to rebound by a modest 0.5% in the following year. These projections are notably weaker than the predictions from the International Monetary Fund (0.9%) and the German government (1.3%).

Germany's economic struggles continue to be a concern for global financial officials. Oya Celasun, deputy director of the IMF's European department, emphasized the long-standing growth challenges facing Germany and the need for reforms. Deutsche Bank AG Chief Executive Officer Christian Sewing also stressed the importance of structural reforms to boost growth.

German Finance Minister Christian Lindner remains optimistic about the country's economic prospects, highlighting its turnaround potential and solid economic foundations.