The German economy escapes recession and maintains contraction

The German economy contracted in 2023 due to persistent inflation, high energy prices and weak external demand, but it avoided a recession at the end of this year.

The Federal Statistics Office said on Monday that the gross domestic product contracted by 0.3% during the entire year 2023.

“Comprehensive economic development faltered in Germany in 2023 in an environment still characterized by multiple crises,” Ruth Brand, head of the statistics office, said on Monday.

In the last quarter of last year, the German economy shrank by 0.3% compared to the previous quarter.

Output in the largest economy in the Eurozone saw little change in the third quarter compared to the previous three months, after the Statistics Office revised data upward.

By stabilizing in the third quarter, the German economy has avoided entering a recession, which is usually defined as two consecutive quarters of contraction.

“Some are taking comfort in the fact that the economy is stuck just contracting and avoiding a recession,” said Carsten Brzeski, global head of macro at ING.

In parallel, the Federal Bureau of Statistics also announced a deficit in the budget of the federal government, states, municipalities and social security funds last year of 2% compared to the gross domestic product.

Preliminary data indicated that the value of this deficit amounted to more than 82.7 billion Euros.

However, with these numbers, Germany is still committed for the second year in a row to the European debt rules, which urge European Union countries through the Stability and Growth Agreement that the national budget deficit shouldn’t exceed 3%, and the total sovereign debt shouldn’t exceed 60% of the nominal gross domestic product.

It’s worth mentioning that in 2022, the deficit rate in Germany reached 2.5%.