German Economy Worse Than Expected Fall In Q4

(RTTNews) - Germany's economy shrank more than estimated at the end of the year amid fears of another contraction in the first quarter, signaling that hopes of a shallow recession in the biggest euro area economy was premature as high inflation continues to weigh on household spending.

Gross domestic product shrank 0.4 percent from the third quarter, when the economy expanded 0.5 percent, detailed results from Destatis showed Friday.

The sequential contraction for the fourth quarter was double the 0.2 percent fall estimated on January 30.

The latest decline in GDP was the worst since the first quarter of 2021, when the economy shrank 1.5 percent after the Covid pandemic ravaged the economic activity across the world. The German economy expanded over the first three quarters of 2022 despite the difficult framework conditions in the global economy, Destatis said.

The economy markedly lost momentum at the end of the year, the statistical office added.

In the February monthly report, Bundesbank said the economic output will fall again in the first quarter, but things could slowly pick up again as the year progresses. However, a significant improvement is not expected, the central bank added.

The risk of yet another contraction in the first quarter is high and the economy is still miles away from staging a strong rebound, ING Economist Carsten Brzeski said.

Echoing a similar view, Commerzbank Senior Economist Ralph Solveen said a noticeable recovery is hardly to be expected in the course of this year in the view of the global tightening of monetary policy.

A survey conducted by the Nuremberg based GfK today showed that German consumer confidence strengthened for the fifth month in a row in March. The index rose to -30.5 points from -33.8 points in February.

However, GfK said the low level of the consumer morale indicator suggest that private consumption will not be able to positively contribute to overall economic development in Germany this year.

On a yearly basis, GDP registered an unadjusted growth of 0.3 percent, which was revised down from 0.5 percent estimated previously, and followed third quarter's 1.3 percent expansion. Likewise, growth in calendar adjusted GDP was downgraded to 0.9 percent from 1.1 percent.

For the whole year of 2022, the statistical office confirmed GDP growth of 1.8 percent and the calendar-adjusted growth was retained at 1.9 percent.

The expenditure side of GDP showed a 1.0 percent sequential fall in household spending in the fourth quarter as consumers spent less on consumption after the fuel discount and the 9-euro ticket ended.

Gross fixed capital formation fell 2.5 percent as there were declines in investment in both construction, and machinery and equipment.

Meanwhile, the government expenditure rebounded 0.6 percent after a 1.2 percent fall.

Both exports and imports were weak at the end of the year, mirroring the supply chain disruptions and high energy prices.

Exports of goods and services dropped 1.0 percent, in contrast to the 1.9 percent increase in the preceding period. There was a slightly larger decrease of 1.3 percent in imports, following a 2.1 percent rise in the third quarter.