German Economy Avoids Recession But Not Broader Crisis

Germany’s economy, Europe’s largest, has once again avoided a technical recession but businesses and consumers keep sending warning signals that the challenges engulfing the country are becoming harder to bear.

Unexpected growth of 0.2% in the third quarter — economists had predicted a 0.1% drop — followed a steeper-than-initially-reported slump of 0.3% in the previous period, the statistics office said Wednesday. 

Germany’s up and down performance can’t disguise the depths of its current economic malaise. It’s burdened with a slump in manufacturing and huge troubles in its car industry, highlighted in figures from Volkswagen AG showing it just had its least profitable quarter since Covid. Bundesbank estimates point to economic stagnation for the rest of the year.

“If at first glance today’s data brings some relief, the German economy currently remains a magnet for negative macro news,” said Carsten Brzeski, ING’s head of macro, adding that there is pressure from both cyclical and structural headwinds. “Since the start of the pandemic, quarterly growth has stagnated on average.”

Separate figures on Wednesday showed that growth quickened in France in the third quarter and held steady in Spain — exceeding expectations. Overall euro-area expansion unexpectedly accelerated to 0.4%. The weak point was Italy, where output was flat.

Germany’s key manufacturing sector is at the center of concern. Struggling with the energy transition, new technologies and worker shortages, it’s lost competitiveness that trading partners — especially China — are now seeking to exploit. 

At the same time, political bickering in Berlin and uncertainty over jobs has kept shoppers at home and driven up savings, with few signs that a turnaround is near. Joblessness rose by 27,000 in October, more than expected. The unemployment rate held at 6.1%.

In government, talk of a coalition breakup before scheduled elections next September has become more pronounced.