Germany's economy may dip further: IMF

Business groups in Germany have urged the government to focus on the economy after new figures showed it has stagnated, while the International Monetary Fund, or IMF, has predicted it could deteriorate further.

After Germany's Federal Statistical Office reported on Friday that the nation's economic output stagnated during the April-to-June quarter, the IMF said it now expects Germany's gross domestic product, or GDP, to shrink by 0.3 percent this year, after having grown by 1.8 percent in 2022.

The United Kingdom's Telegraph newspaper said Germany could now be facing a "prolonged downturn".

Claus Vistesen, of Pantheon Macroeconomics, told the paper Germany's economy looks set to now lag for a while behind the rest of Europe.

"Germany is really, really weak here," he said. "We are looking into a prolonged slowdown. Unless something really dramatic happens, Germany's GDP is going to fall outright this year. That is pretty bad."

Reuters noted that the stagnation of the industrial powerhouse's economy in the second quarter was unexpected, with most experts having predicted modest growth.

At the same time, France saw a growth of 0.5 percent and Spain recorded a growth of 0.4 percent.

Germany's economic output had also been poor in the first quarter of 2023, when it fell by 0.1 percent, and in the final quarter of 2022, when it dropped by 0.4 percent.

The nation's economy, which is Europe's largest, has struggled more than most because it relied heavily in the past on fossil fuels it imported from Russia and Ukraine. The cost of such fuel has shot up since the start of the Russia-Ukraine conflict.

Germany has also struggled with high borrowing costs that have resulted from central banks raising interest rates to try to cool inflation. And Germany has also been hit by weak global purchasing power and depleted factory order books.

The IMF said it now expects Germany to be the world's only major economy to have a shrinking economy this year, and it said it looks set to become the world's worst-performing major economy.

Germany's Economy Minister Robert Habeck said there are, at least, now signs that German consumers are starting to have more money in their pockets, which should mean consumption will start to increase.

But Habeck responded to calls for more fiscal assistance for businesses by saying an economic stimulus package would do more harm than good.