The year 2023 was another turbulent year, the economy was in permanent crisis mode. In fact, there has been a long list of crises and challenges facing the German economy since 2020: supply chain tensions due to the pandemic lockdowns and war in Ukraine, an energy crisis, rising inflation, a tightening of monetary policy, China's changes Role From a thriving export destination to a competitor requiring fewer German products and multiple structural deficiencies. A combination of geopolitical risk events, cyclical headwinds, but also homemade shortcomings. Faced with so many challenges, some take comfort in the fact that the economy is “just” stagnant and has avoided a worse recession. And actually it could have been worse. However, this should not be a reason for complacency. On the contrary: Even if the worst of the downturn in sentiment seems to be behind us, the harsh economic reality is not pretty.
Looking forward, many of the recent drags on growth will still be present at least in the first few months of 2024 and in some cases will have an even greater impact than in 2023. Just consider the still-felt impact of the European Central Bank's monetary tightening , the possible slowdown in the US economy, new uncertainty due to recent budget problems or new supply chain tensions as a result of the military conflict in the Suez Canal. A recent example of the longer-term impact of energy prices, higher interest rates and changing economic structures is the gradual increase in bankruptcies since mid-2022. On the positive side, positive real wage growth, a recovery in Asia and later some interest rate cuts from the European Central Bank are supporting economic sentiment and the could stimulate economic growth. A reversal in the inventory cycle could also bring some relief in early 2024, although this reversal has not yet occurred and is likely to be short-lived.
All in all, we expect the current state of stagnation and shallow recession to continue. In fact, there is a high risk that 2024 will be another year of recession. We expect the German economy to shrink by 0.3% year-on-year this year. It would be the first time since the early 2000s that Germany has experienced a two-year recession, although it could prove to be superficial.
Comments are closed.