German economy shrinks 0.4% in fourth quarter, weak start to 2023 seen

THE German economy contracted more strongly 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 shrank by 0.4 per cent in the fourth quarter of 2022 compared with the previous three months, the statistics office said on Friday (Feb 24).

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

The second consecutive drop in the Ifo’s current assessment component, a falling manufacturing PMI, weak consumer confidence and a willingness to spend close to historical lows, all point to a contraction of the German economy once again in the first quarter, ING’s global head of macro Carsten Brzeski said.

The worse-than-expected final result for the fourth quarter increases fears of a winter recession. A recession is commonly defined as two successive quarters of contraction.

“Today’s numbers show that the sharp rise in energy prices has noticeably slowed down the economy despite the government’s extensive aid measures,” Commerzbank’s economist Ralph Solveen said. With the global tightening of monetary policy, Solveen said a noticeable economic recovery is hardly to be expected.

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After relief measures such as the fuel discount and the 9-euro transport ticket ended, consumers spent less in the fourth quarter than in the third quarter, the statistics office said. Household spending was down 1.0 per cent, while government spending rose 0.6 per cent compared to the previous quarter.

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

In the fourth quarter, exports of goods and services fell 1.0 per cent compared to the third quarter. This was due to the difficult international situation, marked by ongoing supply chain disruptions and high energy prices, according to the statistics office. REUTERS