German economy shrinks 0.4% in fourth quarter and weak start to 2023 is forecast

German economy shrinks 0.4% in fourth quarter and weak start to 2023 is forecast

Germany’s economy contracted more than expected in the final three months of 2022 as inflation and the energy crisis took their toll on household consumption and capital investment.

The German economy contracted 0.4% in the fourth quarter of 2022 from the previous three months, the statistics office said on Friday.

Preliminary data from the office had pointed to a contraction of 0.2% quarter-on-quarter adjusted for price and calendar effects. In the third quarter of 2022, gross domestic product recorded a slight growth of 0.5% compared to the previous three months.

The second consecutive fall in the current evaluation component of the Ifo, a declining manufacturing PMI, weak consumer confidence and a willingness to spend near record lows, point to the German economy contracting again in the first quarter, said ING’s global head of macroeconomics (AS:INGA), Carsten Brzeski.

The worse-than-expected fourth-quarter end result raises fears of a winter recession. A recession is commonly defined as two successive quarters of contraction.

“Today’s figures show that the sharp rise in energy prices has markedly slowed the economy, despite extensive government support measures,” said Ralph Solveen, economist at Commerzbank (ETR:CBKG). With the global tightening of monetary policy, Solveen said that a notable economic recovery can hardly be expected.

Following the end of relief measures, such as the fuel discount and the 9-euro transport ticket, consumers spent less in the fourth quarter than in the third, according to the statistics office. Household expenditure fell by 1.0%, while general government expenditure increased by 0.6% compared to the previous quarter.

Investment also weighed on economic results, according to the statistics office. Construction investment fell 2.9% in the fourth quarter, while investment in machinery and equipment declined 3.6%, both adjusted for inflation, seasonal and calendar effects.

Read Also   Queen Elizabeth II moved to Sandringham with Prince William and Kate Middleton

In the fourth quarter, exports of goods and services fell 1.0% from the third quarter. This was due to the difficult international situation, marked by continuous supply chain disruptions and high energy prices, according to the statistical office.

Leave a Comment