The Bundesbank, Germany’s central bank, has warned that continued, shrinking economic growth in the federal republic will likely bring a shallow recession to the country, but only for a short period.

Bundesbank warns of recession in Germany

The Bundesbank’s monthly report has found that the German economy is likely in recession. With export demands weakened and consumers continuing to tighten their purse strings, the bank predicts that Germany will register an economic decline in the first quarter of 2024, which ends in March. This would follow a 0,3 percent GDP decline in the last quarter of 2023.

The German economy has been almost consistently shrinking since Russia invaded Ukraine in February 2022, and the Bundesbank report predicts little economic growth for the coming year.

The commonly used definition of a recession is when a country records two consecutive quarters of economic contraction. According to figures published by the Federal Statistical Office (Destatis), this already happened in May 2023; Germany registered a GDP loss in the first two quarters of last year, meaning that the country entered a “technical recession”. With GDP falling in both the fourth quarter of 2023 and the first quarter of 2024, Germany once again finds itself in recession.

The new Bundesbank report forecasts this decline to continue, but wrote that there is “still no evidence of a recession in the sense of a persistent, broad-based and distinct drop in economic activity, nor is such a recession currently on the cards".

Rising wages should bring relief to German economic situation

Falling economic productivity rates in the first quarter of 2024 were also impacted by widespread strike action and farmers’ protests across Germany, which brought train, air and public transport to a standstill on multiple days.

During January and February, trade unions in Germany have been negotiating new collective bargaining agreements in many sectors. In most cases, these new agreements include raising wages.

But with high employment figures, rising wages and a falling inflation rate, the Bundesbank cited improving personal finances in Germany as a positive prospect for increasing consumption in the near future. In the meantime, President of the German Institute for Economic Research in Berlin, Marcel Fratzscher, urged the government to boost investment in digital technologies, the school system and infrastructure.

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