Germany expected to see winter recession

A steep drop in factory activity in Germany during November has raised fears of a winter recession, creating fresh challenges for Chancellor Olaf Scholz weeks before the Feb 23 general election.

The Federal Statistical Office reported a 5.4 percent fall in Germany's industrial orders between October and November, with major contracts worth more than 50 million euros ($54.5 million) seeing the sharpest decline.

The downturn extends beyond monthly figures, with orders falling 1.7 percent compared to last year and showing an 8-percent decline from 2020 levels.

Consumer spending offered no relief, as retail sales contracted by 0.6 percent in November, suggesting Germany's traditionally cautious households are maintaining their saving habits rather than boosting the economy through spending, reported The Telegraph newspaper.

Germany's GDP report for the fourth quarter of 2024, which is due on Jan 15, and the subsequent quarter's figures will provide a clearer picture of the economic outlook.

A technical recession is defined as two consecutive quarters of negative GDP growth. While Germany's economy did experience a contraction in the second quarter of 2024, the subsequent growth in the third quarter meant it avoided a technical recession.

Carsten Brzeski, an economist at ING, told The Telegraph the latest figures reinforce expectations of a "light winter recession in Germany".

"There is still no trend reversal in sight for Germany's industry. It's bottoming out at best," he said. "At the same time, disappointing retail sales suggest that the rebound in private consumption in the third quarter is unlikely to continue in the fourth quarter.

"Unless Christmas shopping brings a positive surprise, private consumption is set to drop and ongoing political and policy uncertainty combined with re-accelerating inflation make any substantial rebound in consumption unlikely."

Transport sector orders plummeted 58.4 percent in November, particularly in aircraft, trains, and ships, marking a reversal from October's robust figures, reported Euronews.

There was a significant drop in international demand from outside the eurozone, while orders from within the eurozone fell by 3.8 percent.

Germany's economy has been battered by an energy crunch and a weakened car industry struggling with the shift to electric vehicles. The economic downturn has intensified pressure on Scholz.

The latest economic data for the eurozone on Wednesday showed the bloc's economy ended 2024 on a weak note, with the European Commission's key sentiment indicator falling more than expected in December, and the industrial data from Germany showing continued decline, reported Reuters.

"Today's grim economic sentiment indicator poses a clear downside risk to our forecast of moderate GDP growth in the first quarter of the year," said Leo Barincou, from Oxford Economics. "There is no bright spot for the eurozone economy".