The German economy avoided recession in the first quarter thanks to increased exports and construction spending. Gross domestic product grew by 0.2 percent from January to March compared to the previous quarter, as announced on Tuesday by the Federal Statistical Office.

This is the largest increase in a year. In the fourth quarter of 2023, Europe's largest economy contracted even more than previously forecast, by a revised 0.5 percent (previously: -0.3). Two negative quarters in a row are called a technical recession.

According to statisticians, growth at the beginning of the year was driven by increases in construction investment and exports. “Private consumer spending, on the other hand, fell,” he said.

Overall, in 2023, gross domestic product fell 0.2 percent, slightly less than previously assumed (-0.3 percent). The federal government expects growth of 0.3 percent by 2024.

According to the International Monetary Fund (IMF), no other major industrial country is currently worse off than Germany.

“There will probably only be significant growth in 2025,” predicted LBBW economist Jens-Oliver Niklasch. However, according to many economists, Europe's largest economy may already be over the worst.

“Structural challenges persist”

Recently, many sentiment indicators, such as the business climate, have improved. “Hope is emerging for the long-awaited recovery of the German economy,” said economic expert at the German Institute for Economic Research (DIW), Guido Baldi. “However, structural challenges persist and continue to hold back the growth trend for the time being: from an aging population to lagging digitalization and the long-delayed energy transition.”

Confidence is also growing that private consumption will drive the economy in the future. In March, retail sales rose 1.8 percent in real terms compared to the previous month, the fastest pace in almost two and a half years. “There is growing hope that next spring will stimulate consumption even more,” said Hauck Aufhäuser Lamp Privatbank chief economist Alexander Krüger.

However, the Bundesbank still does not believe that the national economy faces a sustained recovery. “The economy in Germany has improved somewhat, but a full recovery is not yet assured,” says the current monthly report.

The increase in financing costs and greater uncertainty regarding economic policy slowed down the investment activity of companies. Demand for German-made products, both at home and abroad, remains weak. The negative trend in residential construction demand has not yet been broken.

Habeck wants “massive” tax relief program

In its most recent forecast, the federal government saw increasing signs of change. However, a strong economic recovery is not expected for the moment. By the end of 2023, economic output had fallen 0.5 percent compared to the previous quarter, adjusted for price, calendar and seasonality, according to revised figures. In the whole of 2023, Germany fell into a slight recession with a drop in gross domestic product, which according to the latest calculations amounted to -0.2 percent after adjusting prices.

The government slightly raised its economic forecast for the current year and now expects growth of 0.3 percent in the current year. The government had previously assumed a 0.2 percent increase.

Of course, 0.3 percent growth “is not something we can be satisfied with,” admitted Federal Economy Minister Robert Habeck (Greens). But there are a series of positive developments. For example, inflation has fallen faster than expected.

On Monday afternoon (April 29, 2024), Habeck spoke at an event in Kassel in favor of a “powerful and short-term” tax relief program for the economy.

To finance it, the green politician called for a reform of the debt brake. Greater flexibility would allow more to be done for the construction industry and business investments. However, Habeck admitted that there is currently no political majority in favor of reforming the debt brake.

hb/bea (rtr,dpa)