German economy may sink into recession

FRANKFURT, Feb 20: The German economy may fall into recession in the first quarter of 2024, as headwinds persist, the German central bank predicted on Monday.

While confirming that economic output had contracted by a seasonally-adjusted 0.3 per cent in the last quarter of 2023, the Bundesbank forecast that it will decline again in the first quarter.

In its February Monthly Report released on Monday, the central bank says that the weakness of the economy will continue due to low order intake, dampened investment, and unfavourable weather conditions.

However, in defiance of the weakness of the economy, the labour market in Germany remains robust. The fourth quarter of 2023 saw an increase of 28,000 people in employment.

“Thus, there are no signs that the weak economy will cause the labour market to worsen significantly,” said the report.

Inflation fell to 3.1 per cent in January, from 3.8 per cent in December, and the central bank expects the rate to continue falling in the coming months.

Lower inflation, the robust labour market, and strong wage growth supported private consumption.

“There is still no evidence of a recession in the sense of a persistent, broad-based and distinct drop in economic output, and no such recession is expected either,” said the report.