FRANKFURT – The German economy defied expectations for a contraction in the final quarter of last year, suggesting it may avoid an anticipated winter recession, initial estimates from the country’s statistics office showed.
The eurozone’s largest economy grew by 1.9 percent year-on-year in 2022, beating most expectations for 1.8 percent growth. Estimates of a stagnation in the fourth quarter defied forecasts for a slight decrease.
“The question everyone wants an answer to with these headline numbers, is whether the economy is now entering a technical recession — implied by a quarter-on-quarter fall in Q4 GDP — or whether it will just about avoid it, again,” said Pantheon Macroeconomics economist Claus Vistesen. “It’s difficult to tell given that we are, after all, trying to pin down growth to single tenths of a percentage point.”
Germany’s economy has proven surprisingly resilient, already defying expectations of a contraction in the third quarter of last year. Recent economic data added to hopes that Germany may come through the current crisis in better-than-expected shape given its reliance on Russian gas for its key industrial sector.
In light of the economic headwinds stemming from Russia’s war against Ukraine, “The German economy performed well in 2022,” statistics agency chief Ruth Brand said during a press conference to present the data on Friday.
The stronger-than-expected performance was helped by more fiscal support from the government and milder-than-usual weather that kept a lid on energy consumption and prices, suggesting Germany should emerge from this winter without major energy shortages. More recently, China’s move to drop its zero-COVID approach earlier than anticipated is likely to help German businesses.
Leading economic institutes have recently upgraded their growth projections for Germany.
Germany’s IfW expects the economy to expand by 0.3 percent this year. In the fall, it had predicted a decline of 0.7 percent. Ifo Institute upped its forecast to a contraction of 0.1 percent, from a 0.3 percent contraction previously.
Does this mean we are witnessing a second German economic miracle? Analysts think not.
“The warm weather does not simply blow away all economic problems,” ING economist Carsten Brzeski wrote in a recent client note. “Let’s not forget that the German economy is still facing a series of challenges which are likely to weigh on growth this year.” Among other challenges, he cited energy supply next winter, high investment needs for digitalization and infrastructure, and an increasing lack of skilled workers.
Russia’s invasion of Ukraine in February has affected the German economy, with growth now significantly trailing the 2.6 percent recorded in 2021 and earlier expectations for 4 percent growth last year.
Commerzbank’s chief economist Jörg Krämer does not expect Germany to escape a recession this year, even though some of the previous horror scenarios are no longer likely. “We continue to expect a mild recession,” he said. “This is because everywhere in the Western world, central banks have had to raise their key interest rates significantly due to high inflation.”
