Above all, poor construction activity is having a negative impact on the German economy.
(Photo: dpa)
Berlin According to a study, the danger of a recession in the German economy lasting into late summer has increased dramatically. For the period from July to the end of September, the probability of this skyrocketed to 78.5 percent, said the trade union Institute for Macroeconomics and Business Cycle Research (IMK) on Wednesday.
In June it was still 49.3 percent. The IMK indicator, which works according to the traffic light system, is therefore on “red”. This signals an acute risk of recession. The indicator bundles data on the most important economic parameters.
“The German economy is recovering from the recession at the turn of the year 2022/2023 much more hesitantly than many forecasters had expected,” said the scientific director of the IMK, Sebastian Dullien. “In 2023 as a whole, German gross domestic product should now be noticeably below the previous year’s value.” In its current economic forecast, the IMK assumes a decline of 0.5 percent.
In order to limit the damage to the economy, the institute is calling on the European Central Bank (ECB) to refrain from further interest rate hikes. “In this mixed situation, the risks of an overly restrictive monetary policy, as the ECB has already announced for its upcoming key interest rate decision at the end of July, are considerable for the German economy,” said IMK expert Thomas Theobald.
The sharp rise in interest rates has already slowed down the economy and demand so significantly that no inflationary impulses have come from them. The central bank should therefore refrain from the rate hikes announced for July and further rate hikes for the time being.
The labor market is also weakening
According to IMK expert Theobald, there are now “first signs of economic weakness on the labor market”. This applies to the decline in job vacancies, for example. Although there are still many vacancies reported to the Federal Employment Agency, the number has fallen noticeably in recent months.
Gross domestic product shrank by 0.5 percent in the fourth quarter of 2022, and by another 0.3 percent in the following first quarter of 2023. This puts Europe’s largest economy in a so-called technical recession. The weak global economy, the sluggish construction industry and consumer reluctance to buy as a result of high inflation are the reasons for this.
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