German central bank issues warning on economy

The German economy has been shrinking over the past two years and will remain stagnant for the rest of the year as it continues to grapple with economic malaise, Bloomberg reported on Friday.    

According to a survey conducted by the outlet, the EU’s top economy has been stalling in the three months through September, marking a deeper-than-expected decline.    

Economists have already started downgrading their forecasts for this year, with some now seeing protracted stagnation or even another downturn.

“While we expect the market to see a mild recovery at the end of 2024 and in 2025, much of it will be cyclical, with downside risks remaining acute,” Martin Belchev, an analyst at FrontierView told Bloomberg.

He warned that the faltering automotive sector will further exacerbate downward pressures on growth as the top four German carmakers have seen double-digit declines.

The country’s central bank said on Thursday in its monthly report that the German economy may already be in recession. According to the Bundesbank, gross domestic product (GDP) “could stagnate or decline slightly again” in the third quarter, after a 0.1% contraction in the second quarter.

Economic sentiment in the country has suffered due to weak industrial activity, Budensbank President Joachim Nagel said on Wednesday.

“Stagnation might be more or less on the cards for full-year 2024 as well if the latest forecasts by economic research institutes are anything to go by,” he said.

German industry is struggling amid weak demand in key export markets, shortages of qualified workers, tighter monetary policy, the protracted fallout from the energy crisis, and growing competition from China, Bloomberg noted. 

The Eurozone’s largest economy has been falling behind its peers over the past years, largely due to a prolonged manufacturing downturn. Germany was the only Group of Seven economy to contract in 2023.

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