Germany, the 4th largest economy in the world, is set to enter into a recession by next year. Although shocking, the news is not all that surprising given that the country is facing major energy problems due to the ongoing sanctions against Russia. As per earlier reports, the German GDP (Gross Domestic Product) is set to contract by 0.4%.
Germany’s Economy Minister, Robert Habeck, confirmed the earlier report of a 0.4% GDP shrink.
Habeck stated,
“We will have negative growth figures in the third quarter, fourth quarter this year and in the first quarter next year.”
However, regarding the energy concerns, Habeck stated that the country has a good chance of making it through the winter.
Although many were soothed by Habeck’s comments about making it through the winter, his words do not carry any confirmation about the same. Following his remarks, the EUR/USD pair moved marginally lower, and it was last seen registering modest daily gains at 0.9709.
Germany leading the fall?
It is no surprise that the global economic clockwork has been shaken, first by the COVID-19 pandemic, and then by the Russia-Ukraine conflict.
As per the IMF, the German economy will shrink by 0.3% in 2023. In July the IMF forecasted a 0.8% growth for the country. Additionally, Italy might be following Germany into a recession. Both countries will be the first advanced economies to contract because of the ongoing war.
The UK’s economy also contracted by 0.3%. The decline was caused by weak manufacturing and maintenance activity in North Sea oil and gas facilities.
While the Eurozone might not enter a recession, the 19-nation single currency area’s output will expand just by 0.5%. This is significantly weaker than what the IMF had previously predicted. As energy prices have increased due to the conflict on Europe’s eastern border, inflation has skyrocketed, causing the European Central Bank to raise interest rates.
The US inflation data is due tomorrow, and investors are on the edge of their seats anticipating their next move.