Recession fears spread in ‘sick man of Europe’ Germany as prices plunge

Wholesale prices in Germany declined to the lowest level in September, marking the most significant year-on-year drop since May 2020.

In annual terms, wholesale prices were down 4.1 percent compared to the same month a year ago according to the German statistics office, Destatis.

But on the month itself, wholesale prices were up 0.2 percent compared to August, mostly due to a rise in prices of mineral oil products (+2.9 percent).

The DAX, a highly recognised stock market index in Germany comprising the 40 largest companies listed on the Frankfurt Stock Exchange, tumbled by 1.55 percent on Friday.

According to FX Empire, the sharp fall in wholesale prices signals a weakening demand environment. It explained: “Firms reduce prices to win contracts in a low activity backdrop, which would align with expectations of a German recession.”

READ MORE: Tory MPs warn Sunak not to give ground over Brexit to Germany

At 19.8 percent, the steep drop in prices in the wholesale of mineral oil products had the largest impact on the overall development of wholesale prices in September 2023 compared with September 2022.

According to Destatis, this is mainly a result of a base effect stemming from the elevated price levels in the same period last year.

While the prices of mineral oil products rose by 2.9 percent, prices across other various products, including waste and scrap, grain, seeds, chemical products and metals, dropped by as much as 22.7 percent (waste and scrap).

Prices for grain, unmanufactured tobacco, seeds and animal feeds fell by 21.9 percent, chemical product prices fell by 20.8 percent, and metals and metal ores dropped by 14.9 percent. 

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In August, German industrial output declined for the fourth consecutive month, with a 0.2 percent drop, primarily attributed to the construction and energy sectors.

Commenting on the industrial output data, Franziska Palmas, senior Europe economist at Capital Economics said the drop in German industrial production in August was “better than it looked” as it was driven by volatile components.

However, she expects high interest rates and falling demand to lead to a further contraction in German industrial output in the coming months.

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Julian Jessop, an economics fellow at the Institute of Economic Affairs previously told “Even the Germans agree that Germany is the sick man of Europe! This has been a theme in the local press for many years.

“There are many problems, but the three most important are a failed energy policy, excessive dependence on export-led manufacturing, and overreliance on cheap migrant workers. These have been cruelly exposed by Russia’s invasion of Ukraine, the slowdown in China, and the loss of many foreign staff who returned home during COVID-19 and have not returned.”

The German economy is projected to contract by 0.4 percent in 2023 – the only major European nation experiencing negative growth.

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