Is Germany with one foot in the recession? The current water level report from the statisticians suggests that in the fourth quarter of 2022, German economic output surprisingly shrank by 0.2 percent. Economists had previously expected an increase of 0.4 percent.
If the forecast is confirmed, according to which the German economy will also shrink in the first quarter of this year, Germany would actually slide back into recession for the first time since the corona year 2020. Economists speak of a so-called technical recession if there are two negative quarters in a row.
The quick estimate by the statistical experts does not explicitly state which areas of the German economy have slumped by how much. Details will only be available in two weeks. But there are many indications that private consumption in particular has weakened noticeably again, after growth in the third quarter was still largely driven by private consumers.
In autumn, many citizens used the lifting of all corona restrictions to travel more again despite the significantly higher prices and to spend money on going to the cinema, concerts and restaurants, for example. However, this post-pandemic effect is likely to have weakened again towards the end of the year.
In view of persistently high inflation, many consumers still have to keep their money together. This dampens the prospects for the coming months. “Consumers are not immune to the erosion of their purchasing power as a result of record high inflation,” warns Jörg Krämer, chief economist at Commerzbank.
After all, according to most economists, the economic downturn will only last for a relatively short time. Slightly increasing growth rates are already expected for spring. The fear of a severe recession, which temporarily overshadowed the outlook for 2023 last year, seems to have evaporated for the time being.
This can also be seen on the stock exchanges, where the German share barometer Dax made one of the best starts to the year of all time with an increase of almost ten percent in the first three trading weeks. This in turn is probably due to the fact that the German economy grew 1.8 percent above its potential in the past year, despite the burdens caused by the Ukraine war and the sharp rise in energy prices.
Does this mean that “all concerns about the economy will disappear into thin air”, as VP Bank recently stated after surprisingly strong sentiment data from the ZEW and the ifo Institute? Even Federal Economics Minister Robert Habeck does not want to go that far, even if the outlook has brightened up significantly from the government’s point of view: “This country has managed to ward off a serious economic crisis,” Habeck said recently at the presentation of the federal government’s annual economic report. “We now assume that the recession will be shorter and milder – if it does happen.”
For the current year, the federal government now expects slight growth of 0.2 percent, after having expected a fall in gross domestic product (GDP) of 0.4 percent in the autumn. Commerzbank economist Krämer is much more skeptical and continues to expect a decline of 0.5 percent for the year as a whole.
The fact that the central banks in many countries had to raise their interest rates significantly because of inflation speaks for a mild recession. This caused problems for the construction industry, for example, as real estate loans became more expensive. “In addition, German companies have already processed a good part of the high order mountain that arose during Corona,” judges Krämer.
In fact, monetary policy is one of the big unknowns for the future economic outlook. This week, the US Federal Reserve and the European Central Bank will decide on their monetary policy course almost simultaneously. An interest rate hike of half a percent is firmly expected for the euro area, but it is unclear so far how intensively the ECB will push ahead with its further rate hike cycle.
Because energy prices, the most important driver of inflation, have recently fallen and there are increasing signs of a slower interest rate at the Federal Reserve, debates on the right extent and pace of interest rate hikes are also increasing in European monetary policy.
Recently, inflation in the euro zone had weakened more than expected. In December, consumer prices increased by 9.2 percent compared to the previous year. In November, the inflation rate was still 10.1 percent. This means that inflation is still a long way from the ECB’s actual target, which is around two percent.
From the point of view of industry, the economic risks will therefore remain high in the coming months. “High energy prices, record inflation and a noticeable global slowdown in growth will accompany our companies throughout the year,” judges Martin Wansleben, General Manager of the German Chamber of Industry and Commerce (DIHK). That doesn’t exactly sound like a real all-clear.
“Even if a recession will hardly go beyond technical aspects, there is no reason for growth euphoria,” agrees Alexander Krüger, chief economist at the private bank Hauck Aufhäuser Lampe. “Increased structural weaknesses mean that the loss of prosperity will persist for years to come.” In addition, Germany’s special approach to energy policy will entail further competitive disadvantages for many domestic companies.
His verdict for the largest economy in the euro zone is correspondingly gloomy: “It looks as if the German economy will lag behind music in other countries for a long time.”
“Everything on shares” is the daily stock exchange shot from the WELT business editorial team. Every morning from 7 a.m. with our financial journalists. For stock market experts and beginners. Subscribe to the podcast on Spotify, Apple Podcast, Amazon Music and Deezer. Or directly via RSS feed.
