Germany’s Economy Shrank in the Third Quarter

Output in Germany fell slightly in the third quarter, official data showed Monday, increasing the risk of a recession in Europe’s biggest economy.

Gross domestic product dropped 0.1% in the July-to-September period compared with the previous quarter, when it grew 0.1%, according to Germany’s Federal Statistical Office.

This means Germany is teetering on the brink of a technical recession, defined as two consecutive quarters of declining output. A fall in consumer spending drove the decline. The data is not good news for the eurozone because Germany is the largest of its 20 economies.

Economists say the picture is unlikely to improve soon, as the country’s vast manufacturing sector grapples with weak Chinese demand, high energy costs, and painful interest rate hikes. 

Companies in the sector are shedding jobs at the fastest rate in three years, as new orders decline and confidence remains deeply negative.

There was better news on inflation. Consumer prices rose 3% on average in October compared with a year ago. This marked a sharp slowdown from a rate of 4.3% in September.

While Germany’s economy may be particularly hard-hit, business activity in the rest of the euro area has also been unimpressive, leading economists to think a period of stagnation, or even a mild recession, is looming in the region.

A recent survey of companies in the eurozone’s manufacturing and services sectors signaled a steep decline in output in October. The outlook for demand for goods and services also worsened.