(Bloomberg) -- Germany’s economy, Europe’s largest, has once again avoided a technical recession but businesses and consumers keep sending warning signals that the challenges engulfing the country are becoming harder to bear.
Unexpected growth of 0.2% in the third quarter — economists had predicted a 0.1% drop — followed a steeper-than-initially-reported slump of 0.3% in the previous period, the statistics office said Wednesday.
Germany’s up and down performance can’t disguise the depths of its current economic malaise. It’s burdened with a slump in manufacturing and huge troubles in its car industry, highlighted in figures from Volkswagen AG showing it just had its least profitable quarter since Covid. Bundesbank estimates point to economic stagnation for the rest of the year.
“If at first glance today’s data brings some relief, the German economy currently remains a magnet for negative macro news,” said Carsten Brzeski, ING’s head of macro, adding that there is pressure from both cyclical and structural headwinds. “Since the start of the pandemic, quarterly growth has stagnated on average.”
Separate figures on Wednesday showed that growth quickened in France in the third quarter and held steady in Spain — exceeding expectations. Overall euro-area expansion unexpectedly accelerated to 0.4%. The weak point was Italy, where output was flat.
Germany’s key manufacturing sector is at the center of concern. Struggling with the energy transition, new technologies and worker shortages, it’s lost competitiveness that trading partners — especially China — are now seeking to exploit.
At the same time, political bickering in Berlin and uncertainty over jobs has kept shoppers at home and driven up savings, with few signs that a turnaround is near. Joblessness rose by 27,000 in October, more than expected. The unemployment rate held at 6.1%.
In government, talk of a coalition breakup before scheduled elections next September has become more pronounced.
What Bloomberg Economics Says...
“The unexpected GDP uptick in the third quarter doesn’t change our assessment that Germany’s economy struggles to regain footing and 2024 will be yet another lost year of growth. Europe’s largest economy likely won’t develop much momentum in the near future and major woes in its important automotive sector could jeopardize the expected slow recovery.”
—Martin Ademmer, economist. For full react, click here
Volkswagen, the epitome of the engineering prowess that helped power the country’s post-war recovery, is embarking on an unprecedented restructuring. The carmaker plans to close at least three German factories, shrink other sites in the country and slash wages by 10% for about 140,000 workers.
There’s little cheer among other firms, either. A key takeaway from a survey of 25,000 German companies published Tuesday stated that there’s “absolutely no reason for optimism.”
“We aren’t just dealing with an economic crisis, but also a persistent structural crisis,” said Martin Wansleben of the DIHK Chambers of Industry and Commerce. “The feedback from companies supports fears that things could get even worse” in 2025, he said.
The economy shrank 0.3% last year, and DIHK forecasts it will contract 0.2% in 2024 and stagnate next year.
Germany hasn’t seen two back-to-back years of declining economic output in two decades. Even back then, the weakness stemmed in part from the wars in the Middle East that followed the Sept. 11 terror attacks on the US.
With Germany a key contributor to European growth, policymakers have taken notice of its weakness. Last week, European Central Bank Governing Council member Klaas Knot highlighted it as one of those “lagging behind.”
Before that, ECB President Christine Lagarde told Bloomberg Television about “countries that currently are not performing spectacularly” – remarks interpreted by many as being targeted at Germany.
“A revision of the business model and a collective endeavor to support the economy would be helpful, including public spending,” she said.
--With assistance from Kristian Siedenburg and Joel Rinneby.
©2024 Bloomberg L.P.
