FX.co ★ Germany to face GDP contraction amid multiple economic pressures

According to the latest assessments by the Handelsblatt Research Institute, Germany's GDP dipped by 0.2% in October, and projections suggest a further decrease of 0.1% by the end of 2023. The German economy, the powerhouse of the eurozone, contracted by 0.2% in the third quarter of this year. Handelsblatt analysts underscore that by the close of 2023, the nation's economic output is expected to shrink by an additional 0.1%. Preliminary forecasts indicate that Germany's GDP recovery will not commence until 2024, with the pace of economic growth likely to remain modest in the following years. This prognosis is attributed to the exacerbation of structural issues within the economy. Experts foresee a 0.4% decline in the German economy by the end of 2023, followed by a 0.5% rebound by the end of the next year. The majority of analysts agree that the eurozone's leading economy is unlikely to show any considerable growth in the next five consecutive quarters. They estimate a modest 0.1% GDP increase from January to March 2024, followed by a 0.3% uptick from April to September, and a more hopeful 0.4% rise from October to December. However, in the first quarter of 2025, the growth rate is expected to decelerate back to 0.3%. The main culprits behind this sluggish performance are the adverse effects of Europe's energy crisis and a significant surge in energy prices. Additionally, a slow rebound in China’s demand for German exports exacerbates the situation. China remains one of the key export markets for Germany's industrial goods. Previously, the German government had forecasted a 0.4% slump in the national economy by the end of the current year, aligning with the earlier government estimates of an identical increase by the end of December. A dramatic revision of expectations has been prompted by soaring inflation rates, escalating energy prices, subdued business activity in the industrial sector, and a significant hike in interest rates, the highest in a decade.