The last few months of 2023 caused the German economy to diminish, leading many financial experts to suspect an imminent recession.

The prediction from all corners right now is that the German economy is headed for recession and soon. The fourth quarter of 2023 saw Germany’s gross domestic product (GDP) decrease by 0.3%, which was the overall shrinkage for the country’s economy for the year as well. While these losses were expected, that doesn’t make things any easier for the struggling nation.

The cause of economic decline have been listed as high energy costs, nonstop inflation, and little foreign demand for German products compared to previous years.

Economists say that a technical recession is already here, which is characterized by two consecutive financial quarters where the GDP diminished. This kind of recession tends to happen firstly at the levels of banking and trade, but that will eventually trickle down to the local businesses where it will be felt more strongly in the coming months.

How Does This Affect the Euro and Deutsche Mark?

The Euro (EURO) is Germany’s primary currency, with the Deutsche Mark (DEM) its secondary, and any recession in a major European country can have a negative effect on the Euro’s value. As citizens pinch their pennies and watch their spending, less money will change hands and more will be stored away. The longer the recession continues, the more the pinch will be felt and the more it will impact the monetary value.

The Euro has fallen week over week compared to the US dollar (USD). There is a slight uptick today, but the decline is expected to continue. The Deutsche Mark is holding strong against the dollar, having changed little over the last week.

While the German economy has proven resilient for some time now, that resiliency is starting to wear off. Continued inflation is taking its toll, and we will probably see that pressure start to pull down the value of these currencies in the coming months. This is a reminder that Euro investors should watch more than just the British markets if they want to know when to sell. On the positive side, Germany is the only country in the European Union that reported a negative GDP for 2023.