The German economy contracted unexpectedly in the fourth quarter, rekindling the specter of a recession

  • Q4 GDP at -0.2% Q/Q vs forecast of 0.0%
  • Decrease mainly due to declining private consumption
  • Economists expect a mild recession

BERLIN, Jan. 30 (Reuters) – The German economy contracted unexpectedly in the fourth quarter, figures released on Monday showed.

Gross domestic product fell 0.2% quarter on quarter in adjusted terms, according to the Federal Bureau of Statistics. A Reuters analyst poll had predicted that the economy would stagnate.

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

A recession – commonly defined as two consecutive quarters of contraction – has become more likely, as many experts predict the economy will also contract in the first quarter of 2023.

“The winter months are proving to be difficult – although not as difficult as originally expected,” said VP Bank chief economist Thomas Gitzel.

“The serious crash of the German economy has not materialized, but a slight recession is still lurking.”

Germany’s Economy Minister Robert Habeck said in the government’s annual economic report last week that the economic crisis caused by Russia’s invasion of Ukraine is now manageable, although high energy prices and interest rate hikes mean the government remains cautious.

The government has said the economic situation should improve from the spring, and last week revised its GDP forecast for 2023, showing growth of 0.2%, up from a fall forecast of a fall of 0. 4%.

As for the European Central Bank, interest rate expectations are unlikely to be affected by Monday’s GDP numbers as inflationary pressures remain high, said banking economist Ralf Umlauf of Helaba.

The ECB is close to committing to raising its policy rate by half a percentage point this week to 2.5% to curb inflation.

Monday’s data showed that declining private consumption was the main reason for the GDP decline in the fourth quarter.

“Consumers are not immune to an erosion of their purchasing power due to record high inflation,” said Commerzbank chief economist Joerg Kraemer.

Inflation, mainly driven by high energy prices, declined for the second month in a row in December, with EU harmonized consumer prices rising by 9.6% year on year.

However, analysts polled by Reuters predict that annual EU-harmonised inflation will return to double digits in January, rising slightly to 10.0%. On Tuesday, the bureau will publish the provisional inflation figures for January.

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

Our Standards: The Thomson Reuters Principles of Trust.

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