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Germany manages to avoid a new technical recession, but does not get rid of the specter of chronic stagnation

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Germany manages to avoid a new technical recession, but does not get rid of the specter of chronic stagnation

The German economy managed to save the day in the third quarter of the year by avoiding technical recession (two consecutive quarters of contraction in gross domestic product). The figure of 0.2% of GDP quarterly published this Wednesday by the federal statistics agency Destatis in its preliminary reading of the indicator is positively surprising compared to the -0.1% expected by most economists and represents a certain jump compared to the -0.1% of the previous quarter. This does not prevent the traditional economic locomotive of Europe from continuing to carry the label of “sick man” of the Old Continent and from not being able to detach itself from its biggest ghost: a chronic stagnation in which the cyclical and the structural come together, leading to a worrying case of anemia.

The main confidence indicators do not paint a better picture for the rest of the year. Although the recent improvement in the Ifo, the country’s benchmark indicator of business confidence, represents a welcome change of course after five consecutive declines in previous months, the overall picture is that the German economy is very weak. The Ifo and composite PMI, which also increased slightly in October, remain consistent with the contraction in GDP in October. Although it is still early, this suggests that Germany could face a third consecutive quarter of contraction in the fourth quarter, warns Franziska Palmas, analyst at Capital Economics.

The outlook for 2025 is also poor, says the economist, because “tight fiscal policy, loss of industry competitiveness and unfavorable demographics are likely to offset any boost from a recovery in real household incomes and ‘monetary easing’. “We currently expect the German economy to grow by only 0.4% in 2025,” he emphasizes.

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