The German government expects the weakness in the economy to continue in the third quarter of the year. There are indications that the country’s economy faces the risk of recession again. The German Ministry of Economy and Climate Protection released its monthly report on the country’s economy. The report suggests that it is likely for Germany’s gross domestic product to shrink again in the third quarter of the year, stating that “The weak economic phase seems to continue until the second half of 2024 before growth momentum gradually picks up again.” The report also mentions that the recovery in the economy next year will particularly be driven by a revival in private consumption, noting that retail sales in July and August “significantly” recovered in the country. The report states that private consumption will “somewhat” stabilize but highlights concerns about job security and geopolitical crises continuing to pose risk factors for sustainable improvement in consumer sentiment. The report anticipates a revival in external demand throughout the year, with exports increasing due to a reversal in the trend of investment growth. The Ministry’s report includes statements that predict, “The initial stage of economic recovery will be driven particularly by a revival in private consumption, followed by an increase in exports due to the revival of external demand and a reversal in the trend of investment growth in the latter part of the year.” RECESSION RISK PERSISTS On the other hand, the German economy is facing challenges in growth due to rising interest rates, cyclical headwinds, and structural changes. The economy shrunk by 0.1% in the second quarter of the year due to decreasing investments. While the German Central Bank expects a lower growth rate in the third quarter, the Ifo Economic Research Institute evaluates the possibility of further decline in GDP in the third quarter. If there is a contraction in the German economy in the third quarter, it will officially enter a technical recession. A technical recession is defined as “two consecutive quarters of GDP contraction.” Germany experienced a recession for the first time since 2009 in 2020, which was the year of the pandemic following 10 years of economic growth. On September 5, Ifo revised down the country’s growth forecast for 2024 and the coming year from 0.4% to zero due to weak investment and order situation. Germany’s economy also contracted by 0.3% compared to the previous year due to unusual high levels of inflation affecting purchasing power, high energy prices, reduced investments, weak external demand, and high interest rates. The country was the only one among G7 nations to shrink. If Germany contracts this year as well, it will once again be the only country among G7 economies to experience a decline in 2023.