The German economy contracted more in the last 3 months of 2022 than expected. Inflation and the energy crisis, which affected household consumption and capital investment, were the main causes.
The German economy contracted by 0.44% in the fourth quarter of 2022 compared to the previous three months.
Preliminary office data shows a decrease of 0.24% in the quarter, corrected for price and calendar effects. GDP growth in the third quarter of 2022 was lower than in the previous three months, at 0.53%.
Ifo’s current evaluation component has fallen again; The manufacturing PMI is down, consumer confidence is weak and people aren’t spending much. All this points to the German economy contracting again in the first quarter.
Fear of a winter recession
A worse than expected final result in the fourth quarter raises fears of a winter recession. A recession is defined as 2 consecutive quarters of contraction.
The statistics office said consumers spent less in the fourth quarter than in the third quarter after activities such as fuel discounts and the €9 transport ticket ended. Household spending decreased by 1.1% compared to the previous quarter, while public spending increased by 0.63%.
Investments also affected economic indicators. Investment in construction fell by 2.91% in Q4 and investment in machinery by 3.63%, adjusted for inflation and seasonal and calendar effects.
In Q4, exports of goods and services decreased by 1.1% compared to the third quarter. This was due to a difficult international situation characterized by constant interruptions in the supply chain and excessively high energy prices.
After three years of pandemic lockdowns, reopening booms, disrupted supply chains, war and inflation, European policymakers predicted that Europe would return to baseline growth and inflation by 2023. They say it will be 2% inflation. The European economy will be put in order. Unfortunately, the new rule is much more negative than economists assumed.
