German recession looms after economy unexpectedly shrinks
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The German recession is imminent after the EU’s largest economy unexpectedly contracted by 0.2% at the end of last year
Germany is on the brink of recession after the economy contracted unexpectedly by 0.2 percent at the end of last year.
A drop in consumer spending led to a drop in GDP in the fourth quarter, according to official figures.
Economists had expected zero growth for the period from October to December, rather than an outright contraction.
Recession looming: German economy hit hard as Russia cuts gas supply in retaliation for European sanctions over Ukraine war
Another quarter of contraction at the start of 2023 means that Germany is officially in recession.
The economy has been hit hard by Russia cutting off gas supplies in retaliation for European sanctions over the war in Ukraine.
That has increased inflationary pressures on consumers and battered Germany’s energy-guzzling industrial base.
And rate hikes by the European Central Bank to curb inflation have put borrowers under pressure.
Still, a milder than expected winter has eased some of the pressure. The most recent official figures also revise the country’s performance in the third quarter and show that GDP grew by 0.5 percent.
For the whole of 2022, Germany grew by 1.9 percent, slowing down from 2.6 percent in 2021.
Economists from the financial group Nomura said: “It seems that Germany has finally entered its long-awaited recession.
In our view, reduced consumption was probably the main cause of GDP contraction.”
Thomas Gitzel, chief economist at VP Bank, said: ‘The serious crash of the German economy has not materialised, but a slight recession is still lurking.’
The GDP figures come days before a meeting of the European Central Bank, where eurozone interest rates are expected to be raised by half a percentage point to 2.5 percent.