by Maria Martinez

BERLIN (Reuters) – Germany’s economy contracted in 2023 due to persistent inflation, high energy prices and weak demand from abroad, but it avoided a recession at the end of the year.

The gross domestic product (GDP) of Europe’s largest economy fell by 0.3% over the whole of 2023, the Federal Statistical Office announced on Monday.

“Overall economic development weakened in Germany in 2023 in an environment which continues to be marked by multiple crises,” underlines Ruth Brand, president of the Federal Statistical Office, in Berlin.

The contraction in GDP for the whole year is in line with the forecasts of analysts polled by Reuters.

“Despite the recent drop in prices, prices have remained high at all stages of the economic process and have hampered economic growth,” notes Ruth Brand. “Unfavorable financing conditions due to rising interest rates and weak domestic and external demand have also had adverse consequences,” she adds.

According to her, the German economy has not continued its recovery after the sharp economic recession recorded during 2020, the year of the emergence of the COVID-19 pandemic.

However, Germany’s GDP is 0.7% higher in 2023 than in 2019, the year before the pandemic.

The economic performance of industry, excluding construction, declined by 2.0% in 2023, due to much lower production in the energy supply sector, while economic activity in services increased. supported growth, explains the Federal Statistical Office.

Construction, for its part, experienced modest growth of 0.2% in 2023 in a context of deterioration in financing conditions which had a particularly visible impact in the sector while construction costs remained high against a backdrop of shortage of skilled labor.

The data also showed that household consumption in 2023 decreased by 0.8% after price adjustment compared to the previous year and government spending fell by 1.7%.

The moderate pace of growth in the global economy and weak domestic demand in 2023 also had an impact on foreign trade, which declined despite lower prices, with imports recording a contraction of 3.0% and exports a drop of 1.8% over the year. This resulted in a positive balance of exports and imports, which supported GDP.

In the last quarter of 2023, the German economy shrank by 0.3% compared to the previous quarter.

Germany stagnated in the third quarter compared to the previous three months, according to revised figures from the Federal Statistical Office.

The country, however, avoided a technical recession, defined as two consecutive quarters of contraction, thanks to stagnation recorded in the third quarter.

(Written by Miranda Murray and Maria Martinez, Claude Chendjou for the , edited by Blandine Hénault)

Copyright © 2024 Thomson Reuters