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FRANKFURT, Germany (AP) – Germany’s economy shrank 0.3% last year as Europe’s former powerhouse struggled with soaring energy prices, rising interest rates, a shortage of skilled labor and a domestic financial crisis.
Faced with these multiple challenges, Europe’s largest economy has been in stagnation since the last months of 2022. The International Monetary Fund predicted Germany would be the worst performer among major developed economies last year, a stark reversal from its position as a model for how to expand when other countries are struggling.
Germany’s economy is likely to contract by 0.3% in the fourth quarter after stagnating in the third quarter, Germany’s Federal Statistical Office said on Monday, in its first rough estimate. Official statistics for the last three months of 2023 are expected to be released on January 30th.
Meanwhile, debate continues as to why Germany has stalled. Energy-intensive industries are having to pay higher prices for natural gas, as Russia’s invasion of Ukraine wiped out cheap natural gas supplies and as consumers cut back on spending as inflation exploded.
Meanwhile, the global manufacturing slowdown is being felt in the country’s large factory sector, as companies complain they can’t fill highly skilled talent.
The European Central Bank’s interest rate hikes aimed at curbing inflation have made it difficult to build new apartments and offices.
Germany’s Constitutional Court has ruled that tens of billions of euros (dollars) originally intended to cushion the impact of the coronavirus pandemic cannot be diverted to fight climate change or modernize the country. As a result, the government faced a budget crisis. The 2023 and 2024 budgets needed to be reworked.
Some point to a long-term lack of investment in infrastructure such as rail networks and high-speed internet as the government focused on balancing the budget under a 2009 constitutional amendment that limited deficit spending. .
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