Contact Us

German economy grows by 0.4% in summer, beating initial estimate

Published November 25,2022
Subscribe

The German economy increased at a stronger clip than initially reported - 0.4% - in the third quarter when compared to the previous quarter, the Federal Statistical Office announced on Friday.

In a first estimate, the Wiesbaden-based authority had logged an increase in economic output adjusted for price, seasonal and calendar effects of 0.3%.

German gross domestic product (GDP) growth was in positive territory as it was in the first two quarters of the year - at 0.8% and 0.1% - despite the ongoing coronavirus pandemic, supply bottlenecks, rising prices and the war in Ukraine.

Growth in the period from July to September was mainly driven by private consumer spending. Despite high inflation and the energy crisis, consumers took advantage of the lifting of almost all coronavirus restrictions in the third quarter to travel and go out more, for example, the Wiesbaden-based statistics office explained.

Companies invested significantly more in equipment such as machinery. Construction investment, on the other hand, declined, as in the second quarter, adjusted for price, seasonal and calendar effects. High construction prices and higher mortgage interest rates are dampening business.

Many economists expect a frosty six months of wintry conditions in Europe's largest economy. They anticipate a decline in economic output, but do not expect an economic crash like in 2020, the first year of the coronavirus crisis, when GDP shrank by more than 4% for the year as a whole.

They also note that major assistance packages and the fact that Germany has topped up its gas reserves to cushion the company from a cut-off in Russian exports should also help the country through the coming months. "The recession isn't quite as scary as before," said Ulrich Kater, chief economist at Dekabank.

Commerzbank chief economist Jörg Krämer also referred to the German government's relief package. "I still expect a recession, but more than ever, not an economic collapse."

Of particular concern is stubbornly high inflation, which rose to 10.4% in October. High inflation rates are a burden on businesses and reduce the purchasing power of consumers. People can afford less for each euro in their pocket. This can dampen private consumption, an important pillar of the economy.

At the same time, the weakening of the global economy is likely to put pressure on exports, a key component of Germany's economy, according to economists.

Additionally, German consumer sentiment remains subdued going into the key Christmas shopping season, according to data released by market research group GfK. However, analysts say that, although the numbers are negative, they represent stabilization.

"The crash in consumer sentiment appears to have come to an end," GfK said in a statement as it released data showing consumer sentiment at minus 40.2 for December, up by 1.7 points from November's minus 41.9. The forecast had called for minus 39.6.

GfK noted that consumers were reporting a minimized propensity to buy, but that GfK had seen mildly improved expectations about the German economy and income increase expectations.

"Consumers expect that a recession will be unavoidable in the near future, thus agreeing with economic experts, who also expect gross domestic product to shrink by around half a percent next year," read a statement. "Private consumption will also be unable to have positive impact in 2023."

Income expectations rose by 6.2 points, to minus 54.3. That is 67 points lower than a year ago. A measure of consumers' propensity to buy dropped by 1.1 points to minus 18.6 for November, 28.3 points lower than the figure recorded in November 2021.

"This ongoing reluctance to consume is certainly due to the fact that many households will face sharply higher energy bills in the coming months, for which they already have to put money aside. These funds are therefore not available for other purchases and acquisitions," read the report.

But consumers' economic outlook was marginally rosier, up 4.3 points in November to minus 17.9.

The data is based on about 2,000 interviews with consumers made between November 3-14.

According to a forecast by the Organization for Economic Co-operation and Development (OECD), global economic growth will be slowed down next year by Russia's war on Ukraine. According to the forecast, global growth in 2023 is likely to be only 2.2%. That is significantly less than expected before the war.

Thanks to the growth of the past quarters, the German government most recently expected economic output to increase by 1.4% in 2022 as a whole. For the coming year, a decline in gross domestic product of 0.4% compared to the previous year is predicted as a result of the expected economic pressures during the winter.