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German economy is on the verge of recession

A sharp contraction in German output in the third quarter has gradually brought Europe’s largest economy to the brink of recession.

According to the German Federal Statistical Office (Destatis), gross domestic product fell by 0.1% in the July-September quarter compared to the previous quarter, when it grew by 0.1%. Falling consumer spending contributed significantly to the decline. As Destatis notes, a positive contribution to GDP was made by companies’ investment in machinery and equipment.

These data do not bode well for the entire euro zone, as Germany is the largest of its 20 economies. Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said:

 “Germany’s economy is once again teetering on the brink of a technical recession.”

Germany’s recent poor performance has raised worries about its future potential as the country faces an ageing labour force, an over-reliance on China and the need for a rapid energy transition.

Senior officials, including Bundesbank President Joachim Nagel, have warned against excessive pessimism, pointing to the country’s ability to adapt. However, they have recognised the need for action: last week, Economy Minister Robert Habeck called for decisions aimed at keeping the country a place to do business.

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