German GDP shrinks by 0.3% in 2023

(Sharecast News) - The German economy contracted in 2023 as price pressures impacted economic activity, according to the first calculations of the Destatis, the country's federal statistical office. Price-adjusted gross domestic product fell by 0.3% last year, marking the first contraction since the Covid-impacted year of 2020, Destatis said on Monday. The outcome was in line with analysts' forecasts.

However, GDP was still 0.7% higher than than it was in pre-pandemic 2019 after 1.8% growth in 2022 and a 3.2% expansion in 2021.

After adjusting the data for calendar effects, GDP shrunk by a lesser 0.1% 2023. The decline came despite a 0.7% increase in the number of people in employment over the year, which the government put down to positive impact of immigration of foreign workers and lower joblessness in the domestic population.

"Overall economic development faltered in Germany in 2023 in an environment that continues to be marked by multiple crises", said Destatis president Ruth Brand.

"Despite recent price declines, prices remained high at all stages in the economic process and put a damper on economic growth. Unfavourable financing conditions due to rising interest rates and weaker domestic and foreign demand also took their toll. Therefore, the German economy did not continue its recovery from the sharp economic slump experienced in the pandemic year of 2020."

Consumer spending fell by 0.8% over the year as a result of inflation, with spending on durable goods like furnishings and household appliances dropping by 6.2%

Meanwhile, government consumption declined 1.7%, marking the first reduction in price adjusted consumption expenditure in almost 20 years.

"This was primarily due to the discontinuation of state-financed Covid-19 measures, such as vaccinations and compensation paid to hospitals for free beds. With such measures, government consumption expenditure had helped bolster economic performance in the years from 2020 onwards," Destatis said.