Berlin, Germany – The German economy faces challenges as it grapples with declining industrial production and exports, raising concerns about the country’s economic outlook. Industrial production fell by 1.6% in December and was down 1.5% overall in 2023 compared to the previous year. Exports, a cornerstone of the German economy, also took a hit, falling by 4.6% in December and 1.4% across the year to 1.562 trillion euros ($1.68 trillion).
While factory orders seemed to show promise with an 8.9% increase in December compared to November, experts warn that this growth is not as encouraging as it appears. Excluding large-scale orders, factory orders actually fell to a post-pandemic low. Furthermore, factory orders were down 5.9% in 2023 compared to the previous year.
Despite these challenges, there may be some signs of hope in the manufacturing sector. The most recent Purchasing Managers’ Index report suggests that the worst may soon be over, indicating that a slight uptick in growth may be on the horizon.
However, experts remain cautious about the near-term economic outlook. Erik-Jan van Harn, a macro strategist for global economics and markets at Rabobank, predicts a modest contraction in the first quarter of 2024, with flat growth for the full year. Commerzbank Chief Economist Jörg Krämer also forecasts a 0.3% shrinkage in the German economy for 2024, in line with the 0.3% contraction experienced in 2023.
Besides economic challenges, Germany’s coalition government is facing political pressure following a budget crisis and low voter satisfaction. The opposition CDU party is currently leading in the polls, and the far-right AfD has experienced a decline in support amid widespread protests. Additionally, potential trade war threats from the U.S. election could further impact Germany’s economy.
These headwinds come at a time of uncertainty, as Germany’s economy grapples with global rate hikes, high energy prices, and a changing international landscape. The future remains uncertain, with both economic and political factors contributing to the challenges facing Europe’s largest economy.