German output shrank in the third quarter — raising the risk that Europe’s largest economy is headed for a recession.
Gross domestic product fell 0.1% from the previous three months, less than the 0.2% drop economists expected, the statistics office reported Monday, citing a pullback in household spending.
The data underscore Germany’s struggle to bounce back from an energy-induced downturn last winter that was followed by two quarters of stagnation or minimal growth — according to revised data.
It’s the only major economy that the International Monetary Fund sees contracting this year and questions about its longer-term prospects are being asked.
Higher interest rates at home and globally are weighing strongly on demand for industrial goods, which Germany relies on more than its peers to fuel growth. Chemical giant Lanxess AG has announced it will cut 7% of its workforce this month, while Volkswagen AG said it’ll double down on savings to boost profitability.
While services had been holding up better, business surveys by S&P Global show momentum has slowed there, too. What’s more, cracks are appearing in the labor market — another bright spot so far.
Overall private-sector activity continued to contract as the fourth quarter began, according to S&P Global.
Beyond that, cooling inflation and rising wages are expected to produce a consumer-driven rebound, though a recent Bundesbank report said households have yet to increase spending. Analysts polled by Bloomberg reckon Germany will grow 0.5% in 2024.
Other GDP data from the region have been mixed. While Spain maintained growth, Austria fell into recession as consumption and investment slumped. Figures for the 20-nation euro zone are due Tuesday, with analysts estimating growth stalled between July and September.
Germany’s recent sluggish performance has fed concerns about its future potential as it confronts an aging workforce, an excessive reliance on China and the need to rapidly transition to new energy sources.
Top officials including Bundesbank President Joachim Nagel have warned against too much pessimism, pointing to the country’s capacity to adapt. They’ve acknowledged a need for action, however, with Economy Minister Robert Habeck last week urging decisions to safeguard the nation as a business destination.
--With assistance from Joel Rinneby and Kristian Siedenburg.
(Updates with revised historical data in third paragraph.)
