Germany predicted to be the only major European economy to contract this year as recession lingers

Germany is set for a prolonged recession this year — the only major European economy to experience an economic contraction during 2023, according to fresh forecasts by the European Commission, the executive arm of the EU.

Europe’s largest economy is predicted to post a 0.4% fall in economic activity this year — that’s 0.6 percentage points lower than an estimate made in May, according to the commission, which published new forecasts on Monday. The institution also cut its growth expectations for Germany in 2024, from 1.4% to 1.1%.

The German economy has struggled in the wake of Russia’s invasion of Ukraine, with Berlin having to, very quickly, end years of energy dependency on the Kremlin. The International Monetary Fund said in July that Germany would likely contract by 0.3% this year.

Top economists have dubbed the traditional economic powerhouse as the “sick man of Europe.” The concept was coined back in 1998 when Germany faced deep economic challenges. But it’s now being resurfaced as Berlin registers deep declines in output.

Data released in early September showed manufacturing activity in the country fell at its strongest pace since June 2009, excluding the Covid-19 pandemic period.

Other economists, however, disagree that Germany’s current woes can be compared to previous downturns.

“Germany’s situation today differs crucially from the trouble of 1995-2004. First, Germany enjoys record employment, high demand for labour and the most comfortable fiscal position of all major advanced economies. That makes it much easier to adjust to shocks,” Holger Schmieding, chief economist at Berenberg, said in a note in August.