Germany’s economy expanded 0.2 percent during the first quarter of 2024, driven by an increase in construction activity and exports, preliminary data from the Federal Statistical Office revealed on Tuesday. Gross domestic product (GDP) saw a slight uptick in the first quarter, surpassing analysts’ forecasts of a 0.1 percent increase.
While the higher-than-expected growth figure is a positive development, economists remain cautious about the prospects of a robust recovery in Germany’s economy. They noted that Germany is likely to witness narrow-gauge growth instead of a significant upturn, citing persistent structural weaknesses. Notably, Germany had revised its Q4 of 2023 data to reveal a 0.5 percent contraction rather than 0.3 percent, which it previously reported.
Factors impacting growth
Throughout last year, Germany’s economy, the largest in Europe, struggled compared to its peers in the eurozone. Factors such as high energy costs, weak global orders and record-high interest rates contributed to its sluggish performance. Although inflation should ease in the coming months, growth projections remain relatively modest. Last week, Germany’s government raised its economic growth forecasts for 2024 from 0.2 percent to 0.3 percent.
However, there are signs of potential recovery. March saw a higher-than-expected 1.8 percent increase in retail sales, indicating a possible uptick in consumption towards the end of the quarter. Moreover, markets expect private consumption to increase as wages rise amid resilient labor market conditions. Despite this, statistics revealed a decline in household consumption in Q1 as a whole.
Read: U.S. economy grows 1.6 percent in Q1, slowest in nearly two years
Labor market performance
Despite the slight growth in Germany’s economy, the impact on the labor market has been relatively limited. The Federal Labor Office reported an increase of 10,000 in unemployment figures, slightly surpassing analysts’ expectations. The seasonally adjusted jobless rate remained steady at 5.9 percent, showcasing the resilience of the labour market amidst economic challenges.
The Federal Labor Office emphasized the robustness of the labor market despite economic struggles. However, Germany has witnessed a slowdown in labor demand, with job openings decreasing by 72,000 compared to the previous year. This indicates a potential lag in reflecting recent positive macroeconomic trends.
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