Household spending dropped by 0.3%, driving the Germany economy into contraction in the three months to September.
ADVERTISEMENTThe German economy shrank slightly by 0.1% in the three months to September, reversing the same level of growth seen in the previous quarter, according to the country's statistics office.
Private consumer spending, which accounts for about two-thirds of gross domestic product (GDP), dropped by 0.3% following marginal growth (0.2%) in the second quarter. However, public spending increased for the first time in more than a year by 0.2%.
"After the weak economic development seen in the first half of 2023, the German economy began the second half of the year with a slight drop in performance," said Ruth Brand, president of the statistics office to Reuters.
Germany has been among the weakest economies in Europe this year as high energy costs, weak global orders and higher interest rates have taken their toll.
In the second quarter, Germany's economy had grown by 0.1% after stagnating in the first three months of the year.
On an annual basis, German GDP declined by 0.4% after growing by 0.1% in the previous period.
Expectations on the horizon
A court ruling that blocked the transfer of unused funds from the pandemic to green investment and blew a €60 billion hole in the government's budget has led to major uncertainty, particularly among industry, about planned investments.
"Government austerity measures could lead to an additional dampening of growth," said VP Bank Chief Economist Thomas Gitzel to Reuters, adding that "it is unlikely that private consumption or investment will suddenly pick up."
The Bundesbank said in its monthly economic report on Monday that the German economy will likely shrink again in the fourth quarter and show signs of slight improvement early next year.
Meanwhile, Germany's latest Purchasing Managers' Index (PMI) also projects further contraction for the fourth quarter of the year but also indicates that expectations among manufacturers are improving.
Later on Friday, the Ifo Business Climate indicator is also expected to show some upturn in the economic expectations.
