Germany's economy contracts in Q4 2023

25 Feb '24

3 min read

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Insights

Germany's GDP fell by 0.3 per cent in Q4 2023, continuing its economic stagnation amid global challenges.
Household consumption slightly recovered, but trade declined due to subdued demand and high energy costs.
Employment hit a record high, but productivity fell.
Despite a YoY economic downturn, compensation and national income saw increases.

Germany's economic output shrank by 0.3 per cent in the fourth quarter (Q4) of 2023 compared to the third quarter, after adjustments for price, seasonal, and calendar variations, according to Federal Statistical Office (Destatis). This downturn marks a continuation of the economic stagnation witnessed throughout the first three quarters of the year in a still challenging global economic landscape. The year-on-year (YoY) data for 2023 reflects a decline in economic performance by 0.3 per cent, with a calendar-adjusted decrease of 0.1 per cent.

Despite a difficult winter half-year in 2022/2023, household consumption showed signs of recovery in 2023, rising slightly by 0.2 per cent in the fourth quarter from the previous one, driven by an increased demand for services. Government spending also saw a marginal increase of 0.3 per cent. However, the quarter experienced a downturn in trade, with exports and imports falling by 1.6 per cent and 1.7 per cent respectively, affected by subdued foreign demand, geopolitical tensions, and high energy costs.

The manufacturing sector was among the hardest hit, experiencing a 1.4 per cent drop in the fourth quarter. Gross value added across the economy declined by 0.4 per cent quarter-on-quarter, following a period of stagnation.

YoY, GDP saw a 0.4 per cent decrease in the fourth quarter of 2023 compared to the same period in 2022, with a smaller adjusted decline of 0.2 per cent taking into account one less working day. Employment reached a new record high with approximately 46.2 million people employed in Germany, an increase of 216,000 or 0.5 per cent from the previous year. Overall labour productivity fell by 0.4 per cent from the same quarter the year before, with per-employee productivity down by 0.9 per cent.

In terms of compensation, both GDP and gross national income at current prices were 6 per cent higher than in the fourth quarter of 2022. Net national income at factor costs increased by 5.1 per cent YoY. Employee compensation rose by 6.0 per cent, with average gross wages and salaries per employee up by 5.7 per cent, and net average earnings increasing by 7.8 per cent. Total gross wages and salaries saw a 6.3 per cent YoY increase.

The broader European Union and its large member states also experienced economic slowdowns in the fourth quarter of 2023, with Spain and Italy recording modest growth, while France and the Euro area saw stagnation. In contrast, the US outperformed most European countries with a 0.8 per cent increase from the previous quarter and a 3.1 per cent YoY rise.

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