Germany Faces Recession: Bundesbank Highlights Struggles Amid Rising Costs

Germany is likely experiencing a recession, according to the Bundesbank. The nation’s economy is hindered by weak external demand, cautious consumer behavior, and high borrowing costs impacting domestic investment.

This downturn is partly attributed to increased energy costs following Russia’s invasion of Ukraine in 2022, marking a period of stagnant or negative growth for Europe’s largest economy. The Bundesbank’s monthly report highlights Germany’s struggle, noting a potential slight decline in output for the first quarter of 2024. This would signify a technical recession, defined by two consecutive quarters of economic decline.

The report points to declining foreign industrial demand and a shrinking order backlog as contributing factors. Additionally, investments by firms have been curtailed, partially due to the European Central Bank’s interest rate hike aimed at combating inflation. Strikes in sectors like transport and high nominal wage growth have also pressured economic growth.

Despite these challenges, the Bundesbank does not foresee a significant deterioration in the labor market and does not predict a broad-based, prolonged recession. The bank remains optimistic that the current economic weakness, exacerbated by the ongoing effects of the Ukraine conflict, will not fundamentally shift Germany’s economic trajectory.

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