German economy now likely in recession - Bundesbank

Germany's Bundesbank warned on Monday that Europe's largest economy was now likely in recession, with external demand weak, consumers remaining cautious, and domestic investment being held back by high borrowing costs.

According to data from Bundesbank, Germany's industry-heavy economy was now in its fourth consecutive quarter of zero or negative growth, weighing on the entire eurozone, with much of its woes laying at the feet of Russia and its invasion of Ukraine in 2022, which pushed up energy prices.

"There is still no recovery for the German economy," said Bundesbank. "Output could decline again slightly in the first quarter of 2024. With the second consecutive decline in economic output, the German economy would be in a technical recession."

While the weak performance has raised questions about the sustainability of the German economic model, with critics arguing that its energy-reliant heavy industry has been priced out of international markets, the government, however, claims that it was nothing more than a perfect storm of high energy costs, weak Chinese demand, and rapid inflation.

Although Bundesbank said the weakness will persist for now, it expects no major deterioration to take place in the labour market, which has broadly insulated the German economy thus far, meaning it was not likely to face a broad-based, prolonged recession.

"The weak phase in the German economy that has been ongoing since the beginning of the Russian war of aggression against Ukraine will thus continue," it added.

Reporting by Iain Gilbert at Sharecast.com