German economy remains sluggish despite falling energy prices

The German economy looks set to remain on a low-growth track in the coming months even though challenging factors such as price inflation and supply chain problems appear to be receding, the country’s Economy and Climate Action Ministry (BMWK) has said. “Early indicators, such as company order books and business climate indices, suggest that there will be no sustainable recovery of the German economy for the time being,” the BMWK said in its August analysis of the state of the economy. After a “mild recession” during the winter months, the economy was stagnating in the second quarter of 2023, despite higher private spending, the ministry said. While falling energy and resource prices on global markets improved Germany’s terms of trade, companies remained pessimistic regarding their export prospects.

Overall, industrial production in the second quarter was 0.6 percent lower than in the first, mainly driven by a 3.4 percent decline in energy-intensive production. Company order books showed “a generally heterogeneous picture influenced by heavy oscillations and one-off effects,” the BMWK said, adding that a “palpable recovery” of the industry sector was not yet on the horizon. The increase in consumer prices slowed in July to 6.2 percent. Energy price indicators continued to point downward, the ministry added. Spot prices for natural gas were 86 percent lower than in the previous year, but future contracts indicated that gas prices would likely rise again during winter, and that gas will not return to pre-crisis price levels before 2027, the ministry said.