German central bank expects weak growth to start 2024

The German economy's weak performance will continue through the first months of the current year, the German Bundesbank central bank forecast in its latest monthly report published on Monday.

Following a decline in gross domestic product (GDP) at the end of 2023, economic output in Germany could fall again slightly in the first quarter of 2024, the report said.

Numerous strikes by German labour unions, including a lengthy work stoppage at the national railway Deutsche Bahn, have played a role in slowing short-term growth, the bank said.

Economist consider two consecutive quarters of shrinking GDP as a technical recession.

"However, a recession in the sense of a significant, broad-based and prolonged decline in economic output cannot be identified and is not currently expected," the bank's experts wrote in the monthly report.

The Bundesbank forecast consumer spending to pick up again in view of a "stable labour market, sharply rising wages and a declining inflation rate."

At the beginning of the current year, however, consumers are likely to have continued to hold back on spending, the report cautioned, and private consumption - an important pillar of the economy - fell at the end of last year.

According to preliminary data from Germany's Federal Statistical Office, overall economic output shrank by 0.3% percent in the fourth quarter compared to the previous quarter.

A separate report from economists at the Hans Böckler Foundation's Macroeconomic Policy Institute (IMK) also warned that the risks of a recession in Germany over the coming months are rising.

The growing prospects of a recession are mainly due to falling production in Germany's manufacturing sector, according to the report, released on Monday. The report cited the most recent available industrial production data, which covers through December.

The researchers see further negative factors in recent weak retail sales as well as an above-average number of bankruptcy filings by German companies compared to before the pandemic.

Rising industrial orders improved the outlook somewhat but should not be overestimated, according to IMK economist Thomas Theobald.

The uptick is mainly due to large orders in aircraft construction, which are not as indicative of underlying economic momentum, he said.

"With each passing month, the risk grows that the economic slump we have been experiencing for several quarters will turn into chronic weak growth," IMK Director Sebastian Dullien said in a press release.

Dullien urged action by the European Central Bank (ECB) and the German government to counter the trend: "The ECB should cut interest rates as soon as possible. And German politicians should introduce realistic measures that take effect quickly."