German economy unexpectedly shrinks in Q4, reviving spectre of recession

German economy unexpectedly shrinks in Q4, reviving spectre of recession

  • This autumn GDP at -0.2% Q/Q vs forecast of 0.0%
  • Decline due primarily to falling non-public consumption
  • Economists reckon gentle recession is probably going

BERLIN, Jan 30 (Reuters) – The German economy unexpectedly shrank in the fourth quarter, knowledge confirmed on Monday, an indication that Europe’s largest economy could also be coming into a much-predicted recession, although probably a shallower one than initially feared.

Gross home product decreased 0.2% quarter on quarter in adjusted phrases, the federal statistics workplace mentioned. A Reuters ballot of analysts had forecast the economy would stagnate.

In the earlier quarter, the German economy grew by an upwardly revised 0.5% versus the earlier three months.

A recession – generally outlined as two successive quarters of contraction – has grow to be extra probably, as many consultants predict the economy will shrink in the primary quarter of 2023 as properly.

“The winter months are turning out to be tough – though not fairly as tough as initially anticipated,” mentioned VP Bank chief economist Thomas Gitzel.

“The extreme crash of the German economy stays absent, however a slight recession remains to be on the playing cards.”

German Economy Minister Robert Habeck mentioned final week in the federal government’s annual financial report that the financial disaster triggered by the Russian invasion of Ukraine was now manageable, although excessive power costs and rate of interest rises imply the federal government stays cautious.

The authorities has mentioned the financial state of affairs ought to enhance from spring onwards, and final week revised up its GDP forecast for 2023 — predicting development of 0.2%, up from an autumn forecast of a 0.4% decline.

As far because the European Central Bank goes, rate of interest expectations are unlikely to be affected by Monday’s GDP figures as inflationary pressures stay excessive, mentioned Helaba financial institution economist Ralf Umlauf.

The ECB has all however dedicated to elevating its key charge by half a share level this week to 2.5% to curb inflation.

Monday’s figures confirmed falling non-public consumption was the first cause for the lower in fourth-quarter GDP.

“Consumers are usually not resistant to an erosion of their buying energy as a result of report excessive inflation,” mentioned Commerzbank chief economist Joerg Kraemer.

Inflation, pushed primarily by excessive power costs, eased for a second month in a row in December, with EU-harmonized client costs rising 9.6% on the 12 months.

However, analysts polled by Reuters predict annual EU-harmonized inflation will enter the double digits once more in January with a slight rise, to 10.0%. The workplace will publish the preliminary inflation charge for January on Tuesday.

Reporting by Miranda Murray and Rene Wagner, enhancing by Rachel More and Christina Fincher

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