German Economy Contracts In Q4

The German economy contracted at the end of the year, damping the possibility of the euro area skirting a technical recession, as suggested by recent surveys.

Gross domestic product logged an unexpected quarterly fall of 0.2 percent, reversing the revised 0.5 percent expansion in the third quarter, preliminary data from Destatis revealed Monday. GDP was forecast to remain flat.

Bundesbank had earlier projected the largest euro area economy to roughly stagnate in the fourth quarter.

Although the breakdown of GDP is unavailable, Destatis said private consumption, which has been supporting the economy in the first three quarters, was lower in the fourth quarter.

Data pours cold water on the recent optimism about the prospects for the Eurozone and suggests that a technical recession in both Germany and the euro area as a whole is more likely than not after all, Capital Economics economist Franziska Palmas said.

Nonetheless, the economist said Germany will avoid a deep downturn on generous government energy support, fall in gas prices and backlogs of orders supporting industrial activity.

ING economist Carsten Brzeski stuck to the forecast of a winter recession in Germany and a very mild recession for the whole of 2023.

“The warmer winter weather, along with implemented and announced government fiscal stimulus packages, have prevented the economy from falling off a cliff, but a technical recession is still a likely outcome,” Brzeski said.

The ifo Institute forecast the economy to shrink only 0.1 percent in 2023 and return to 1.6 percent growth in 2024.

Year-on-year, economic growth, on an unadjusted basis, slowed to 0.5 percent from 1.3 percent in the preceding period.

Likewise, calendar-adjusted GDP growth eased to 1.1 percent from 1.4 percent a quarter ago. Detailed results for the fourth quarter will be released on February 24.

The annual growth for the whole year of 2022 was revised down to calendar adjusted 1.9 percent from 2.0 percent estimated on January 13. Price-adjusted GDP was up 1.8 percent, which was revised down from 1.9 percent.

Last week, the German government said the economy is set to avoid a recession this year. GDP is forecast to expand 0.2 percent this year, instead of 0.4 percent decline estimated previously. The growth rate is expected to improve further to 1.8 percent next year.

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