German economy grew by 1.9 percent in 2022

Despite headwinds last year, the German economy continued to catch up after the Corona crisis. However, Europe’s largest economy slowed down. Economic output increased by 1.9 percent in 2022 compared to the previous year, as the Federal Statistical Office announced on Friday based on initial calculations. In 2021, gross domestic product (GDP) had grown by 2.6 percent.

The war in Ukraine abruptly dashed hopes of a strong upswing after two years marked by corona restrictions. Nevertheless, the economy delivered robust growth.

Only stagnation at the end of 2022

“The overall economic situation in Germany in 2022 was primarily shaped by the consequences of the war in Ukraine, which included extreme increases in energy prices,” said the President of the Federal Statistical Office, Ruth Brand, in Berlin. According to initial estimates, the economy will only have stagnated by the end of 2022.

Despite a loss of purchasing power due to record inflation of 7.9 percent, private consumption in particular boosted the economy last year with 4.6 percent higher consumer spending. In the first Corona years, many people had saved additional money due to unusual trips, restaurant or concert visits, which were now at least partially spent again. In addition, companies invested 2.5 percent more in equipment such as machinery and vehicles.

In contrast, construction spending fell by 1.6 percent due to higher borrowing costs and delivery bottlenecks. Exports climbed 3.2 percent while imports grew more, at 6.7 percent. Economic output thus again exceeded the pre-corona level of 2019.

Prospects for 2023 are improving

Many economists no longer assess the prospects for 2023 as gloomily as they did after the start of the Russian war of aggression in Ukraine: the recession that had been feared for a long time is likely to be comparatively mild, and the latest economic forecasts predict a decline in GDP of less than one percent 2023 out.

Because the state is relieving private households and companies with billions of euros in the sharp rise in energy costs, some institutes are even expecting slight economic growth in Germany in the current year. Many households still have a comparatively large amount of money that they could not spend during the pandemic.

Inflation is likely to ease

It is true that currently high energy costs and generally high inflation are slowing down consumption. According to economists, the situation should gradually ease from the second half of 2023. Then private consumption, an important pillar of the domestic economy, should pick up again. In addition, economists expect demand for goods “Made in Germany” from abroad to pick up again.

“Economic growth in 2023 will be significantly weaker and will be close to the stagnation limit,” said the scientific director of the IMK Institute, which is close to the trade unions, Sebastian Dullien. Because the economy is only just working its way out of the energy price shock. The Kiel Institute for the World Economy (IfW) expects growth of 0.3 percent this year, which should accelerate to 1.3 percent in 2024. The Munich Ifo Institute and the Essen RWI, on the other hand, each expect a shrinkage of 0.1 percent for 2023.

German government deficit falls to 2.6 percent

At the same time, the government aid programs are likely to drive the German government deficit up again in 2023. According to calculations by the Federal Office, the federal, state, local and social security funds spent more money than they received in the past year. The minus added up to 101.6 billion euros.

Nevertheless, after two outliers in the Corona years 2020 (4.3 percent deficit) and 2021 (3.7 percent deficit), Germany again complied with the European debt rule: Based on the total economic output, according to the preliminary calculations, the deficit last year was 2 .6 percent.

The European Stability and Growth Pact allows the EU states to have a budget deficit of no more than three percent and a total debt of no more than 60 percent of nominal GDP. The EU countries have temporarily suspended these rules because of expensive corona aid programs. According to the current status, the plan is for the pact to take effect again regularly from 2024.

ul/dk (dpa, rtr)