German economy shrank at the end of the year

Record inflation and the energy crisis slowed down the economy in Germany at the end of last year. Gross domestic product shrank by 0.2 percent in the fourth quarter of 2022 compared to the previous quarter, as the Federal Statistical Office announced on Monday in an initial estimate. The Wiesbaden authorities had initially assumed that economic output would stagnate in the period from October to December.

This makes a recession more likely: Most experts expect Europe’s largest economy to shrink again in the current first quarter. Economists only speak of a recession if there are two negative quarters in a row. A slight upward trend is expected again from spring.

Gloomy forecasts not fulfilled

Overall, Europe’s largest economy grew by 1.8 percent last year despite the headwind. That is slightly less than the initially estimated 1.9 percent. However, the forecasts, which had been gloomy for a long time in view of the Ukraine war, did not come true.

According to the information, in the fourth quarter private consumer spending in particular, which had supported the German economy in the course of the year to date, was lower than in the previous quarter.

Economists more optimistic for this year

Economists are no longer assessing the prospects for this year as bleakly as they did after the beginning of the Russian war of aggression in Ukraine in February last year. According to many economists, the German economy will at best shrink slightly this year. Some economists expect slight economic growth in the current year because the state is providing billions of euros in relief for private households and companies in connection with the sharp rise in energy costs.

Stefan Schneider, chief economist for Germany at Deutsche Bank Research, assumes that GDP in the first quarter is likely to fall by around 0.25 percent compared to the previous quarter, “so that Germany could end up experiencing a technical recession.” However, it is then “really just a technical recession – that is, two consecutive quarters of shrinking GDP – and not a growth setback that was feared until recently.”

Alexander Krüger, chief economist at Hauck Aufhäuser Lampe Privatbank, comments on the figures with the words: “Economic output has decreased, but there has been no economic crash.” Nevertheless, there is no reason for growth euphoria. “Growing structural weaknesses mean that the loss of prosperity will continue for years to come. It looks as if the German economy will be lagging behind music in other countries for a long time.”

The federal government does not fear a slump in the economy

The federal government now expects an increase of 0.2 percent in gross domestic product. The slowdown in economic momentum at the turn of the year 2022/23 is likely to be shorter and milder than expected in autumn, according to the federal government’s most recent annual economic report. There will be no deep economic slump this year, said Economics Minister Robert Habeck (Greens). The worst scenarios have been prevented.

Business and consumer sentiment has been improving for some time. According to the Nuremberg market research company GfK, the consumer climate has risen for the fourth time in a row. “Even if the level is still very low, pessimism has subsided recently,” said GfK expert Rolf Bürkl recently. Companies started the new year with more confidence. The Ifo business climate rose by 1.6 points to 90.2 points in January compared to the previous month. It was also the fourth increase in a row.

ul/hb (dpa, rtr)