German central bank warns of recession, citing strikes

The German central bank, the Bundesbank, on Monday warned that a technical recession was possible by the end of the first quarter of 2024, particularly given recent strikes and their impact on infrastructure like public transport and airports. 

The Bundesbank said it could "not be ruled out, that the various strikes, among other places in areas like rail and air travel, reduce productivity."

The next round of such strikes scheduled for Tuesday this week will affect German airports, with Lufthansa ground staff from trade union Verdi stopping work.

Germany's gross domestic product contracted by 0.3% year-on-year in the last quarter of 2023, as well as shrinking over the entire year combined. 

"With the second consecutive [quarterly] reduction in economic performance Germany's economy would find itself in a technical recession," the Bundesbank said. 

Bundesbank does not foresee 'widespread and lasting' recession 

However, the central bank also sought to stress that it believed the potential recession would be shallow and short-lived.

"The period of weakness since the start of the Russian war of aggression against Ukraine would therefore continue," the bank wrote. 

"But a recession in the sense of a considerable, widespread and lasting contraction of economic performance still cannot be observed and is also not to be expected." 

The bank cited improving personal finances for many in Germany, and what it believed was positive prospects for consumption as a result, pointing to high employment figures, rising wages, and an inflation rate that is falling and again nearing the German and European target of around 2%.

It said a continued modest reduction in inflation appeared likely in the near future, having reached 2.9% in Germany — the lowest level in around two-and-a-half years — in January.

The Bundesbank cautioned, however, that consumers might continue to act cautiously, despite the improving situation, given the strains of first the COVID pandemic and then the subsequent cost of living and supply chain pressures that were exacerbated by rising fuel and energy costs after Russia's invasion of Ukraine.

And the bank also warned of potential pressure on Germany's crucial export market, saying demand for German-made goods appeared to be "reducing considerably." 

German business leaders call on government to do more

Two industry federation bosses called on the government to commit to more public investment during a video conference on Monday, in a bid to spur more economic activity. 

The head of the Ifo (Institute for Economic Research), Clemens Fuest, said consumers were still unsettled and that business figures for the first quarter appeared "extremely bad." 

He recommended that the ruling coalition reach out to the powerful opposition CDU/CSU to try to find consensus on some kind of boost to public investments. 

"I believe these would be confidence-inspiring steps that would also help immediately," Fuest said. 

The president of DIW Berlin, meanwhile, said it was encumbent on political leaders to boost investment, particularly in infrastructure, digitalization and education.

Last week, Germany became the world's third largest economy on paper, amid similar strains — coupled with currency devaluation pressures against the dollar not being suffered by the euro — in Japan, whose GDP converted into dollar terms fell below Germany's. 

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msh/wmr (AFP, dpa, Reuters)