Will Germany avoid the recession?

Dusseldorf There is almost something ritual about it: around three weeks after the Federal Statistical Office has presented the details of the economic development of the previous quarter, the major economic research institutes present their revised forecasts – often in step with one another.

The current forecasts from September are between 1.1 and 1.6 percent growth for the year that is coming to an end and between 0.8 percent growth and 1.4 percent contraction for 2023. The institutes agreed in their joint forecast for the government At the beginning of October – as is not uncommon – roughly on the mean values ​​of the individual forecasts, i.e. 1.4 percent plus in the current year and 0.4 percent minus in the coming year.

From today’s perspective, that was probably too pessimistic. The German economy grew surprisingly strongly by 0.4 percent in the third quarter – and a decline in economic output in the current fourth quarter, which until recently was still considered certain, is by no means certain.

Contrary to expectations, production in the manufacturing sector at the start of the quarter in October shrank only slightly by 0.1 percent compared to September. At the same time, the result for September was revised upwards so that the October value was slightly above the average for the third quarter. To put it bluntly: industry started the final quarter with a slight tailwind.

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For the Commerzbank economists, who until recently had predicted a sharp slump of 1.5 percent for the whole of 2023, it is now likely “that the German economy will not shrink in the fourth quarter either, despite the massive increase in energy prices”.

>>Read here: Consumers take action again – HDE consumption barometer rises to highest level since July

Last but not least, the fact that the state with its relief packages “takes on a large part of the higher bill for energy imports” also contributes to this. In addition, rationing of natural gas has become significantly less likely. The bank economists therefore revised their economic expectations for 2023 upwards by a full percentage point – and now only expect a decline in economic output of 0.5 percent.

It is “unlikely” that Germany will be spared a recession, says Commerzbank chief economist Jörg Krämer. With the worldwide “noticeable tightening of monetary policy”, one of the traditional economic drivers has deteriorated drastically. With the usual delay, this is likely to shrink the economy on both sides of the Atlantic in the coming year.

The glass is currently half full

At the moment, of course, upward impulses seem to be predominant. The Ifo business climate has been rising for two months and the purchasing managers’ indices have also left their lows.

In addition, consumers’ concerns about rising prices and interest rates have noticeably diminished; the HDE consumption barometer calculated by the Handelsblatt Research Institute climbed to a five-month high in December. In addition, oil prices have recently fallen significantly, so that petrol, diesel and heating oil have become significantly cheaper; the inflation rate fell slightly in November.

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Assuming a stagnating overall economy in the final quarter, this would result in economic growth of 1.9 percent for the year that is ending – which, viewed in isolation, would be anything but a bad result.

After all, it would be the fifth highest growth within ten years; on average, the German economy grew by just over one percent per year during this period.

In addition, the German economy would then start the coming year with a “statistical overhang” of around 0.2 points. This means that even with zero growth in all four quarters of 2023, the statistics would end up with 0.2 percent growth.

The reason: the year-end value is always the starting point for the development in the following year. If this value exceeds the annual average, there is a statistical surplus – and in the opposite case, a deficit.

China is the hope for the global economy

China is hoping for an early end to the global economic downturn. For one thing, President Xi Jinping seems to be having a moderating effect on Russian President Vladimir Putin. On the other hand, the political leadership has now announced that it is moving away from its zero-Covid strategy, with far-reaching easing of lockdowns, quarantine rules, mandatory testing and travel.

In principle, it should be possible for infected people without symptoms or with a mild course of the disease to go into isolation at home. Even contact persons are no longer threatened with the quarantine camp as before.

The question remains how the political leadership will react if the virus spreads rapidly and, as feared, takes thousands of lives.

Should China’s economic weakness come to an end, German industry would also benefit. On the one hand, the delivery difficulties from the Far East should decrease, on the other hand, the demand for products made in Germany should increase.

Can Germany avoid a recession?

So the chances are not that bad that Germany will still be able to avoid a recession, even if the progress of the Ukraine war with all possible consequences is not foreseeable. No one knows yet how the gas storage tanks will be filled again next summer and how the nuclear reactors that have been shut down will be permanently replaced.

It is clear that energy will remain expensive in the long run – and that the government cannot permanently shield citizens and business from the economic consequences.

Because the double crisis of the corona pandemic and the Ukraine war has already created a huge mountain of new national debt – and this has to be financed even if interest rates are rising, ultimately with additional tax revenue.

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