Preliminary data from the Federal Statistical Office indicates that the German economy grew by just 0.1% in the third quarter compared to the previous one. Economists remain optimistic that declining inflation rates could encourage increased consumer spending in the coming months.

The Federal Statistical Office, or Destatis, released data on Friday revealing that Germany's economic growth in the third quarter of 2024 fell short of analysts’ expectations.

Gross domestic product (GDP) increased by just 0.1% compared to the previous quarter, underperforming the preliminary estimate of 0.2%. This modest growth highlights the fragility of Germany's economy, which has narrowly avoided slipping into recession this year. A recession is typically defined as two consecutive quarters of economic contraction.

Household consumption rose by a limited 0.3% quarter-on-quarter, while government spending saw a slight increase of 0.4%. However, these gains were offset by a 2.4% decline in goods exports, a crucial component of Germany’s economic strength.

The German economy has been grappling with reduced industrial orders, a lingering consequence of the COVID-19 pandemic and the geopolitical ramifications of Russia's war in Ukraine. Despite a decrease in inflation, the country has struggled to reinvigorate its economy. One prominent indicator of this economic distress is the ongoing crisis at Volkswagen. Once a symbol of German industrial prowess, the automaker is now implementing drastic measures to cut billions from its budget, including the closure of several factories nationwide.

The faltering economy has had significant political ramifications. Earlier this month, the coalition government led by Chancellor Olaf Scholz collapsed, with the economy being a key factor in its dissolution.

Economists remain cautiously optimistic about the final quarter of the year. They hope that declining inflation and slight wage increases will boost consumer spending, providing a much-needed lift to the struggling economy.