Showing no sign of recovery from its winter recession, the German economy remained stagnant in second-quarter 2023 compared to the previous three months. The worlds fourth-largest economy now stands as one of the weakest major economies globally (read: ETFs in Focus as Germany Slips Into Recession).

According to Reuters, the second-quarter growth figure of zero matched the initial late July estimate. When comparing year on year, the adjusted GDP shrank by 0.2% during the same quarter, pointing toward a pessimistic outlook for both long-term and short-term economic prospects for Germany.

What Does the Economic Data Say?

Quoting the Reuters article, Carsten Brzeski, ING's global head of macro, underlines weakened purchasing power, diminished industrial orders, a decelerating Chinese economy, and the impacts of substantial monetary policy tightening. These collectively indicate a trajectory of weak economic performance for Germany in the foreseeable future.

Recent economic data highlights stagnant household spending and fallen export levels in the second quarter as compared to the first. However, on a positive note, government spending and capital investment experienced growth during the same period.

Looking ahead, Pantheon Macroeconomics predicts a 0.2% GDP decline in the third quarter, followed by a 0.4% rebound in the final quarter of the year. This suggests a 0.2% annual GDP drop for Germany in 2023.

Weak Consumer Sentiment

As per a Reuters article, according to a recent GfK institute survey, German consumer confidence is predicted to drop in September. This is due to decreasing income expectations and willingness to make purchases.

GfK consumer expert Ralf Buerkl, as quoted in the article, says that chances of a sustained recovery in consumer sentiment before the year's end are diminishing. He also mentioned that consistently high inflation rates are preventing any improvements in consumer sentiment.

GfK also mentions that since it is expected that consumer sentiment will remain low in the upcoming months, private spending won't contribute positively to Germany's overall economic growth this year. Instead, it will pose a challenge to growth prospects.

Other Persisting Problems

As mentioned in a CNN article, Germany is grappling with a combination of challenges rather than facing a single major issue. Being one of the major export partners of Germany, China’s weak economic data lowers demand for German exports. Meanwhile, other issues, such as a rapidly aging German population and a high corporate tax rate, are more deeply ingrained and structural in nature.

High inflation in the country is also a cause of concern for the economy. Experiencing high inflation compared to its European counterparts, Germany is witnessing diminished purchasing power, which is spreading the pessimistic outlook among the households.

Increased interest rate and the significant surge in construction expenses are restricting new business opportunities. In August, German business activity, covering both services and manufacturing, experienced its sharpest decline since May 2020, as indicated by S&P Global, according to the CNN article.

ETFs in Focus

Below, we highlight a few ETFs with exposure to Germany that may help to navigate the uncertain conditions (see: all European Equity ETFs here).

iShares MSCI Germany ETF (EWG Quick QuoteEWG - Free Report)

iShares MSCI Germany ETF tracks the MSCI Germany Index, having exposure to large and mid-sized companies in Germany. The fund has major allocations to industrials, financials and consumer discretionary sectors with a share of 18.31%, 17.99% and 16.23%, respectively.

iShares MSCI Germany ETF has gathered an asset base of $1.54 billion and charges an annual fee of 0.50%.

Global X DAX Germany ETF (DAX Quick QuoteDAX - Free Report)

Global X DAX Germany ETF closely tracks the performance of the DAX index. The fund has major allocations to industrials, financials and information technology sectors, each having a share of 24.8%, 17.5% and 14.3%, respectively.

With an asset base of $56.42 million, Global X DAX Germany ETF charges an annual fee of 0.21%.

Franklin FTSE Germany ETF (FLGR Quick QuoteFLGR - Free Report)

Franklin FTSE Germany ETF tracks the performance of the FTSE Germany RIC Capped Index, giving exposure to large- and mid-sized companies in Germany. The fund has major allocations to industrials, financials and information technology sectors, each having a share of 18.21%, 17.72% and 15.95%, respectively.

Franklin FTSE Germany ETF commands an asset base of $16.11 million and charges an annual fee of 0.09%.

iShares MSCI Germany Small-Cap ETF

iShares MSCI Germany Small-Cap ETF seeks to closely track the performance of the MSCI Germany Small Cap Index. EWGS has major allocations to industrials, information technology and the materials sector, having a share of 25.14%, 17.25% and 13.28%, respectively.

iShares MSCI Germany Small-Cap ETF has amassed an asset base of $20.79 million and charges an annual fee of 0.59%.

First Trust Germany AlphaDEX Fund (FGM Quick QuoteFGM - Free Report)

First Trust Germany AlphaDEX Fund seeks to track the performance of NASDAQ AlphaDEX Germany Index. The fund has major allocations to consumer discretionary, industrial sectors and materials, each having a share of 22.84%, 22.74% and 19.94%, respectively.

First Trust Germany AlphaDEX Fund has gathered an asset base of $20.98 million and charges an annual fee of 0.80%.