German economy contracts in third quarter

Germany’s economy contracted slightly in the third quarter, confirming an initial estimate of a 0.1% shrinkage. This signals a continuation of weak economic performance in the second half of the year following a challenging first six months. Factors such as high energy costs, weak global orders, and higher interest rates have contributed to Germany’s status as one of Europe’s weakest economies in 2023.

Private consumer spending, a significant GDP component, declined by 0.3%, while government consumer spending increased for the first time in over a year by 0.2%. A court ruling blocking the transfer of pandemic funds to green investment has created uncertainty, particularly regarding planned industry investments.

Government austerity measures may further dampen growth, with hopes for a sudden pickup in private consumption or investment deemed unlikely.

The Bundesbank’s monthly economic report suggests a likely contraction in the fourth quarter, with slight improvement expected in early 2024.