September 19th, CAIJING News (Editor: Shi Zhengcheng) Germany's economy, which has been struggling to support itself on the threshold of economic contraction for nearly two years, seems to be finally entering a formal recession.

According to the monthly report released by the German Central Bank on Thursday, the country's GDP growth rate "may stagnate or slightly decline in the third quarter". In the August report, the German Central Bank had expected a slight growth in the economy from July to September this year.

This change in expectations will bring an important turning point - Germany's economy officially enters a technical recession.

According to the standard of "two consecutive quarters of negative GDP growth", Germany has been on the verge of crossing this threshold since the end of 2022. The quarterly GDP growth rate has been arranged evenly with "up one month, down one month", always just a little bit away from a recession. For example, in the first and third quarters of this year, the GDP contracted by 0.4% and 0.1% respectively compared to the previous quarter, but it rebounded by 0.2% in the second quarter.

In conjunction with the previously reported 'Volkswagen's intention to close German factories for the first time in history,' the pillar industry is willing to 'cut costs and increase efficiency' at the expense of offending local workers, which is indicative of the current state of the German economy. The latest news also indicates that Intel has postponed the large-scale investment in building chip factories in Germany.

Call for not being too pessimistic.

The German central bank also stated in its report that the country's economy is 'still navigating in volatile waters,' and the reasons for the downward revision of economic growth expectations include the 'soft start' of the manufacturing and construction sectors in the third quarter, combined with the soft consumer spending situation.

Economists point out that the increasing economic policy uncertainty has put pressure on corporate investment activities, while the rise in financing costs has also suppressed the demand for various commodities and services. The central bank states that despite the recovery in demand for industrial products, it is not sufficient to alleviate the overall industry's shortage of orders.

At the same time, indicators such as private car registrations also indicate that German consumers are still restraining their spending. The good news is that the outlook for the labor market remains stable, and wage growth continues to outpace inflation. The German central bank expects the growth in purchasing power to gradually manifest in private consumption.

In line with the judgment of the European Central Bank, the German central bank currently anticipates that after the year-on-year growth rate of the 'harmonized consumer price index' dropped to 2% in August, the inflation figure will rise again in the coming months, which is also related to the significant decline in energy prices last autumn.

Regarding the impending recession situation, economists at the German central bank also emphasize in the report that the country is unlikely to experience a significant, widespread, and sustained economic recession at this time. The German economy shrank by 0.3% in 2023, making it the only country in the G7 group to experience an economic contraction.

Bundesbank President Weidmann emphasized that Germany's commercial position should not be depreciated, but of course this does not mean that we should not point out weaknesses and decisively address issues.

Weidmann also stated that if the forecasts of economic research institutions have any reference value, then the German economy in 2024 may be more or less stagnant. Bundesbank previously anticipated in June that the German economy would grow by 0.3% in 2024. The next forecast will not be released until December this year.