Summary
- Q4 GDP at -0.2% Q/Q against forecast of 0.0%
- Decrease due mainly to falling private consumption
- Economists believe mild recession is likely
The German economy unexpectedly contracted during the December quarter, data showed on Monday, a sign that Europe’s biggest economy may be heading into a much-predicted recession, though possibly a shallower one than initially feared.
Gross domestic product contracted 0.2% quarter on quarter in adjusted terms, the federal statistics office said. A Reuters poll of analysts had predicted the economy would stall.
In the third quarter, the German economy expanded by an upwardly revised 0.5% compared with the previous three months.
A recession – typically defined as two consecutive quarters of contraction – has become more likely, as many experts forecast the economy will contract in the first quarter of this year as well.
“The winter months are turning out to be difficult – although not quite as difficult as originally expected,” said VP Bank chief economist Thomas Gitzel.
“The severe crash of the German economy remains absent, but a slight recession is still on the cards.”
German Economy Minister Robert Habeck said last week in the government’s annual economic report that the economic crisis sparked by the Russia-Ukraine war was now manageable, though rising energy prices and interest rate hikes indicate the government remains cautious.
The government has said the economic situation should get better from spring onwards, and last week revised up its GDP forecast for this year — predicting expansion of 0.2%, up from an autumn forecast of a 0.4% fall.
As far as the European Central Bank goes, interest rate bets are unlikely to be impacted by Monday’s GDP figures as inflationary pressures continue to be high, said Helaba bank economist Ralf Umlauf. The ECB has all but committed to hiking its key rate by half a percentage point this week to 2.5% to combat inflation.
Monday’s figures showed declining private consumption was the main reason for the fall in fourth-quarter GDP.
Buy Crypto Now“Consumers are not immune to an erosion of their purchasing power due to record high inflation,” said Commerzbank chief economist Joerg Kraemer.
Inflation, driven largely by soaring energy prices, subsided for a second successive month in December, with EU-harmonized consumer prices increasing 9.6% on the year.
However, analysts surveyed by Reuters forecast annual EU-harmonized inflation will enter the double digits again this month with a slight increase, to 10.0%. The office will announce the preliminary inflation rate for January on Tuesday.
