The first official assessment of the development of the German economy managed to wake up the specter of recession
Germany sent not-so-encouraging signals to the entire eurozone after announcing data showing a contraction in the economy in the fourth quarter of 2022. It can be said that the risks of recession are definitely not avoided.
The first official assessment of the development of the German economy in the last quarter of last year, which was awaited with great anticipation, managed to wake up the specter of recession. The detailed figures are expected to be announced by the Federal Statistical Office Destatis on February 24 and will be closely watched by analysts across Europe.
And if a decrease in the gross domestic product (GDP) is registered for the quarter to the end of March, this would mean a recession in the leading European economy, writes the Italian edition “Money”.
The question arises why Germany ended 2022 without growth and what warning does this send to the whole of Europe?
The German economy contracted unexpectedly in the last quarter of 2022 amid high gas prices and an increase in finance costs, which led to a drop in demand.
The IMF predicts growth in the economy of Russia, Great Britain and Germany stagnate CHARTS
Gross domestic product (GDP) fell 0.2 percent between the third and fourth quarters of 2022, a sharp slowdown from growth of 0.5 percent in the previous quarter and below the expectations of analysts polled by Reuters.
“After the German economy did well in the first three quarters despite difficult conditions, the economy shrank slightly in the fourth quarter,” announced Destatis.
The decline in the last three months of the year means a recession – two consecutive quarters of falling GDP – is becoming more likely, as many experts predict the economy will shrink in the first quarter of 2023 as well.
According to the Ministry of Economy, the situation in Germany should improve from spring onwards. Last week, the German government revised upward its economic forecasts for 2023 and projects GDP growth of 0.2 percent, compared with autumn forecasts for a fall of 0.4 percent.
Some indicators in recent weeks have indeed pointed to increased confidence among Germans in the development of the economy in view of a milder winter and full gas storages, virtually eliminating the risk of shortages during the heating season. Wholesale commodity prices have fallen to record lows, raising hopes that inflation will slow earlier than previously expected.
However, demand has waned as ever-rising prices continue to hit consumers. A similar trend was observed in Sweden, whose economy unexpectedly shrank in the fourth quarter, according to data from the national statistics office.
German manufacturers reported a drop in orders, although production was supported by a large backlog of previous orders and the elimination of supply chain difficulties.
The signals coming from the leading European economy do not look encouraging for the entire eurozone.
What scenario awaits Germany and the Eurozone?
The eurozone’s biggest economy has been hit harder than other European countries by rising gas prices because of its large industrial output.
Higher interest rates and prices, according to the best-case scenario, will persist in the first half of 2023, said Francisca Palmas, senior economist for Europe at Capital Economics.
The ECB is determined to tackle rising prices with a tougher approach and this week raised its key interest rates by another 50 basis points, continuing its most aggressive policy in its history.
The uncertainty brought by the data from Germany is a clear signal that the entire eurozone remains in the grip of high prices and still fragile growth.
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