German economy shrinks by more than expected

The German economy shrunk by more than expected in the last three months of 2022, official data showed on Friday, increasing the prospect of the country falling into recession.

According to the Destatis, the Federal Statistics Office, GDP declined by 0.4% in the fourth quarter compared to the third on a price, seasonal and calendar-adjusted basis, a sharp reversal on the 0.5% growth seen in the third quarter.

Both Destatis and analysts had estimated there would be a 0.2% contraction.

Year-on-year, GDP rose 0.3% on a price adjusted basis in the fourth quarter.

Destatis said that the German economy - Europe’s largest - had "markedly lost momentum" at the end of last year.

It continued: "The continuing large price increases and the ongoing energy crisis had a negative effect on the German economy towards the end of the year. This was reflected especially in household final consumption expenditure, which was down 1.0% in the fourth quarter.

"After reliefs such as the fuel discount and the €9 [transport] ticket ended, consumers spent less on consumption in the fourth quarter."

Claus Vistesen, chief Eurozone economist at Pantheon Macroeconomics, said: "The Germany economy took a bigger hit at the end of 2022 than initially expended, mainly due to a sharper than initially expected fall in consumer spending on goods…and a plunge in construction in December.

"The trade surplus also suffered a setback in December, which likely wasn’t fully factored in in the early report.

"Looking ahead, we doubt the economy has enough momentum to avoid another fall in GDP in the first quarter and as a result a technical recession."

Carsten Brzeski, global head of macro at ING, said: "The German economy has surprised by showing more resilience than feared, despite facing a long series of crises. However, while this resilience - driven by fiscal support and warm winter weather - has prevented the economy from falling into a deep recession, it is definitely no guarantee for a strong rebound anytime soon.

"We think that the risk of yet another contraction in the first quarter and thus a technical recession is high."

A recession is defined as two consecutive quarters of negative growth.