Thursday, 02 February 2023 16:22

Recession fears voiced in Germany as economy shrinks in Q4

FRANKFURT, Germany: Data released this week showed that the German economy unexpectedly shrank in the fourth quarter of 2022, indicating that Europe’s largest economy could be entering a recession, though less severe than originally predicted.

The federal statistics office said that adjusted gross domestic product (GDP) decreased 0.2 percent quarter-on-quarter in adjusted terms, while in the previous quarter, the German economy grew by 0.5 percent, compared with the previous three months.

A recession, defined as two successive quarters of contraction, has therefore become more likely.

"The winter months are turning out to be difficult, although not quite as difficult as originally expected. The severe crash of the German economy remains absent, but a slight recession is still in the cards," said VP Bank chief economist Thomas Gitzel, as quoted by Reuters.

In the government’s annual report released last week, German Economy Minister Robert Habeck said that the economic crisis caused by Russia’s invasion of Ukraine was manageable, but the government is remaining cautious due to high energy prices and interest rate increases.

The economic situation should improve from spring onwards, the government said, after revising its GDP forecast for 2023 by predicting growth of 0.2 percent, up from a forecast in autumn of a 0.4 percent fall.

Declining private consumption was the primary reason for the decrease in fourth-quarter GDP, this week’s figures showed.

"Consumers are not immune to an erosion of their purchasing power due to record high inflation," noted Commerzbank chief economist Joerg Kraemer, according to Reuters.