April 24, 2024
World Economy

Recessionary trends in the world economy strengthening

Data and statements by government authorities continue to be issued which show that the recessionary trends in the global economy are strengthening at an increasing rate.

In its monthly report issued on Monday, the German Bundesbank warned that the economy was likely to shrink in the first quarter of this year following a decline in output in the last quarter of 2023.

The central bank said “stress factors would probably remain in the first quarter” meaning that “economic output could therefore decline slightly again.” There were few signs of a rebound and “the German economy would be in a technical recession”—defined as two consecutive quarters of negative growth.

Last year the German economy contracted by 0.3 percent making it the worst performing of all the major economies.

The Bundesbank warning followed last week’s statement by the economy minister, Robert Habeck, that the government was revising down its already low estimate of growth for 2024 from 1.3 percent to just 0.2 percent and the following year from 1.5 percent to 1 percent. Whether even these lowered estimates will be reached is very much in question.

The Bundesbank noted the worsening outlook for the world economy and its impact on Germany, saying foreign demand for its goods had “recently trended down significantly.”

President of European Central Bank, Christine Lagarde, at a press conference after an ECB’s governing council meeting in Frankfurt, Germany, on January 25, 2024. [AP Photo/Michael Probst]

It also pointed to the higher interest rate regime which the European Central Bank is determined to keep in place until it sees evidence that wage increases and demands are being sufficiently suppressed. The issue of wages was front and centre of the remarks by ECB president Christine Lagarde following the meeting of the central bank’s governing council on January 25.

The Bundesbank said consumers were “probably still cautious about their spending” and higher borrowing costs were “likely to continue to dampen investments.”

It is a measure of the overall decline in the world economy that Germany, weakened as it is, has become the world’s third largest economy in US dollar terms. It has taken the place of Japan, which has also entered a technical recession after its growth contracted 0.3 percent in the fourth quarter following a shrinkage of 3.4 percent in the third.

Stefan Angrick, chief economist at Moody’s Analytics in Tokyo, told the Financial Times the two consecutive quarterly contractions added to a “string of disappointing data releases.”

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