German economy shrinks by 0.4%

German economy shrunk more in the last 3 months of 2022 than expected. Inflation and the energy crisis, which affected household consumption and capital investment, were the main cause.

German economy shrank by 0.44% in the 4 quarter of 2022 compared to the previous 3 months.

Preliminary office data showed a decrease of 0.24% in the quarter, adjusted for price and calendar effects. GDP growth in Q3 2022 was lower than the previous three months, at 0.53%.

The Ifo current assessment component has dropped again; manufacturing PMI is at a low, consumer confidence is weak, and people are not spending much. This all points to the German economy contracting again in the first quarter.

Fear of a winter recession

A worse-than-expected final result in Q4 raises fears of a winter recession. A recession is defined as 2 consecutive quarters of contraction.

The statistics office said that consumers spent less in the 4 quarter than in the third quarter after easing activities such as fuel discounts and the €9 transport ticket ended. Household expenditures decreased by 1.1% compared to the previous quarter, while public expenditures increased by 0.63%.

The investments also affected ‌economic indicators. Investment in construction fell 2.91% in Q4, and investment in machinery fell 3.63%, adjusted for inflation and seasonal and calendar effects.

In ‌Q4, exports of goods and services decreased by 1.1% compared to the third quarter. This was due to a difficult international situation characterized by constant supply chain disruptions and excessively high energy prices.

After three years of pandemic shutdowns, reopening booms, disrupted supply chains, war, and inflation, European policymakers predicted that Europe would return to baseline growth and inflation by 2023. They say it will be 2% inflation. The European economy will be sorted. Unfortunately, the new norm is much more negative than economists assumed.