San Francisco Frontiers - German economy shrank at end of 2023: data

Output shrank 0.3 percent from October to December in the eurozone's biggest economy, federal statistics agency Destatis said.

The reading confirmed an earlier estimate for the fourth quarter by the agency, and was in line with a forecast by analysts surveyed by financial data firm FactSet.

In the last three months of 2023, "there was a marked decline, in particular, in (investments) in construction and in machinery and equipment," Destatis said in a statement.

The agency also confirmed an initial estimate from earlier this month that Europe's export giant shrank 0.3 percent across the whole of 2023, and narrowly dodged a recession in the second half of the year.

By contrast, other eurozone countries reported growth for 2023 on Tuesday.

The French economy expanded by 0.9 percent, although it stagnated in the second half of the year, while Spain grew 2.5 percent, Portugal by 2.3 percent and Italy by 0.7 percent.

The German economy was plunged into crisis when Russia invaded Ukraine in early 2022, sending food and energy costs surging.

The country's crucial manufacturing sector was hit particularly hard by soaring power costs, with the situation compounded by slowing demand from key export destinations, such as China.

Interest rate hikes to tame inflation as well as more long-term issues, such as chronic shortages of skilled labour, are also weighing on Germany.

The economy is expected to start recovering this year, with Germany's Bundesbank central bank recently forecasting growth of 0.4 percent.

But ING bank economist Carsten Brzeski said the outlook remained troubling.

"In the first months of 2024, many of the recent drags on growth will still be around and will, in some cases, have an even stronger impact than in 2023," he said.

He listed the ongoing impacts of European Central Bank rate increases and industrial action.

D.Robinson--SFF