The German economy contracted more than expected at the end of 2022

A shopping trolley in a supermarket aisle, in Muelheim Ruhr (Germany).

EFE

The German economy contracted more than initially expected at the end of last year, which has made it necessary to correct the advance data.

The gross domestic product (GDP) fell by 0.4% in the fourth quarter, the Federal Statistical Office (Destatis) announced this Friday, which in a first estimate had calculated a decrease in economic production of 0.2%.

The fall in consumer spending and lower business investment explain this slowdown, the office said.

The consequences of the war in Ukraine, the disruption of supply chains and high inflation are hitting Europe's leading economy, which is headed for a technical recession: forecasts indicate that GDP will also contract in the first quarter of the year .

According to the calculations of the federal government, it will be a mild recession, after which, in the spring, the German economy will pick up again.

High inflation in the last quarter weighed especially heavily on consumption, which had towed the economy for much of last year after the end of coronavirus restrictions.

Investments in construction also fell, as in the two previous quarters, as well as those of companies in equipment such as machinery and vehicles.

"Economic production in the first quarter of 2023 is likely to be lower again than in the previous quarter," predicts the Bundesbank in its latest monthly report, adding that gas shortages are no longer expected and that aid Governments to lower the price of electricity and gas are mitigating the increase in energy costs for homes and businesses.

The German government expects a slight growth of 0.2% for 2023, according to the forecast presented by its Minister of Economy and Climate, Robert Habeck, last January.

Prospects are much more optimistic after assuming a fall in GDP of 0.4% in autumn and a recession in the traditional sense, with a fall in economic production on average for the year.

"Now we assume that the recession will be shorter and milder, if it happens at all," Habeck said during the press conference to present the forecast report.

"There are no signs of a significant recession, something that many observers considered inevitable," he added.

Several leading indicators have improved recently, such as the Ifo business climate index, which has been rising for five consecutive months.

The confidence of German businessmen, which this institute measures each month with surveys, stands at 91.1 points compared to 90.1 in January.

"The German economy is gradually emerging from a period of weakness," concludes Clemens Fuest, president of Ifo.

Inflation does not give a truce

Inflation for now is not letting up after the rise in January and continues to reduce the purchasing power of the Germans.

The consumer price index (CPI) reached 8.7% in January, as reported this week by the Statistics Office, dragged down above all by the costs of energy and food.

In December prices increased 8.1%.

However, the harmonized inflation data, the one used by the European statistical office, Eurostat, registered a relief last month, standing at 9.2% compared to 9.6% in December, which makes it the highest level. down in five months.

“After a slowdown at the end of last year, the inflation rate remains at high levels,” said Ruth Brand, president of Destatis.

“We are seeing price increases for many goods and, to an increasing degree, also for services.

Households paid higher prices in particular for energy and food in January,” she added.

In the tables that detail these increases, some food groups stand out that registered price increases of 35%, especially in basic necessities such as dairy products and eggs, or fats and oils.

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