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Germany’s Economy Contracts in Q4 2023

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Germany’s economy experienced a contraction in the final quarter of 2023, narrowly avoiding a recession. The country’s gross domestic product shrank by 0.3% from October to December compared to the previous quarter. This decline can be attributed to low global demand and high inflation, which continued to weigh on the economy.

Preliminary data from Germany’s statistics office, released on Tuesday, revealed that the fourth-quarter decline matched earlier signals indicating a contraction. Full-year GDP figures for 2023 showed that Europe’s largest economy contracted by 0.1% due to high inflation and tight financing conditions.

The decline in investment in construction and machinery compared to the third quarter was particularly notable. This decrease reflects the burden of high interest rates from the European Central Bank. Money markets are anticipating a rate cut in April, although ECB President Christine Lagarde stated that it would be premature for policymakers to discuss cuts at the last monetary-policy meeting.

Other indicators also suggest ongoing economic difficulties for Germany. The Ifo index, a leading economic-sentiment barometer, declined further in January. Service providers, in particular, expressed pessimism about their future prospects. Additionally, the country is currently facing a series of public-sector strikes, including among farmers and public-transport workers. Furthermore, Germany’s coalition government, already plagued by disagreements, must now navigate the aftermath of a constitutional court ruling that severely restricts its investment abilities.

Despite these challenges, Germany’s central bank, the Bundesbank, forecasts a slow recovery in 2024 with an expected expansion of 0.4% for the economy. GDP data for the entire eurozone during the final three months of 2023 will be published at 1000 GMT.

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