German economy shrinks more than expected, adds to recession fears
A senior citizen next to empty supermarket shelves cleared due to panic buying because of widespread fear early in the COVID-19 pandemic, Berlin, Germany, March 18, 2020. (Shutterstock File Photo)


The German economy shrank more than expected in the last three months of 2022, amid an ongoing energy crisis and inflation, raising fears that the country could be headed for a recession.

The German economy shrank by 0.4% in the fourth quarter of 2022 compared with the previous three months, the statistics office said Friday.

Preliminary data from the office had pointed to a 0.2% quarter-over-quarter contraction adjusted for price and calendar effects. In the third quarter of 2022, gross domestic product (GDP) saw slight growth of 0.5% 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 hard to be expected.

After relief measures such as the fuel discount and the 9-euro ($9.49) transport ticket ended, consumers spent less in the fourth quarter than in the third quarter, the statistics office said. Household spending was down 1%, while government spending rose 0.6% compared to the previous quarter.

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

In the fourth quarter, exports of goods and services fell 1% 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.

Russia's invasion of Ukraine triggered a sharp rise in energy prices in Europe, as Moscow dwindled important gas supplies to the continent.

The negative revision to growth figures showed that a "recession is in the making," said Carsten Brzeski, head of macro at the ING bank.

The German economy had shown "more resilience than feared," with the help of government support and clement winter weather that took the sting out of the energy crisis, Brzeski said.

But there was "no guarantee for a strong rebound anytime soon," with signs pointing to another quarter of negative growth in the first quarter of 2023 and thus a recession, he said.

Officials in Berlin currently predict economic growth of 0.2% in 2023, having previously anticipated a drop.