The German economy is predicted to contract by an additional 0.2% in the first quarter due to a universal slump in demand, according to a recent forecast by the ifo Institute. Timo Wollmershauser, the head of forecasts at ifo, anticipates this shrinkage could push the German economy into a recession.
Official figures released recently reveal a 0.3% drop in Germany's GDP in the last quarter, following stagnation for the two preceding quarters. Wollmershauser notes that a decrease in demand is observable across virtually all sectors of the economy.
The manufacturing and construction sectors, especially in residential areas, are witnessing a reduction in new orders and an increase in cancellations. The ifo Institute attributes this downturn to the implementation of a restrictive monetary policy in Europe and North America aimed at stabilising prices by increasing key interest rates.
Furthermore, issues like high rates of illness, strikes by Deutsche Bahn railway workers, and an exceptionally cold and snowy January are exerting additional strain on the largest eurozone economy, as highlighted by the ifo Institute.
However, a silver lining appears in the form of private consumption. Increases in retail and hospitality sector sales, which started during the Christmas period and extended into mid-January, suggests some optimism. Wollmershauser identifies signs of growth in the upcoming quarter as household incomes start to outpace price increases, potentially spurring a tangible recovery in purchasing power.
