German economy shrinks 0.4% in fourth quarter, weak start to 2023 seen

Reuters

Published Feb 24, 2023 02:08AM ET

Updated Feb 24, 2023 04:16AM ET

By Maria Martinez

BERLIN (Reuters) -The German economy contracted more strongly than expected in the final three months of 2022, as inflation and the energy crisis took their toll on household consumption and capital investment.

The German economy shrank by 0.4% in the fourth quarter of 2022 compared with the previous three months, the statistics office said on Friday.

Preliminary data from the office had pointed to a 0.2% quarter-on-quarter contraction adjusted for price and calendar effects. In the third quarter of 2022, gross domestic product saw slight growth of 0.5% compared to the three months prior.

The second consecutive drop in the Ifo's current assessment component, a falling manufacturing PMI, weak consumer confidence and a willingness to spend close to historical lows, all point to a contraction of the German economy once again in the first quarter, ING's global head of macro Carsten Brzeski said.

The worse-than-expected final result for the fourth quarter increases fears of a winter recession. A recession is commonly defined as two successive quarters of contraction.

"Today's numbers show that the sharp rise in energy prices has noticeably slowed down the economy despite the government's extensive aid measures," Commerzbank (ETR:CBKG)'s economist Ralph Solveen said. With the global tightening of monetary policy, Solveen said a noticeable economic recovery is hardly to be expected.

After relief measures such as the fuel discount and the 9-euro transport ticket ended, consumers spent less in the fourth quarter than in the third quarter, the statistics office said. Household spending was down 1.0%, while government spending rose 0.6% compared to the previous quarter.