Fears of recession in Germany ease as economy grows 1.9% in 2022

Fears that Germany could enter recession have eased after the federal statistical agency reported that the economy grew by 1.9 per cent in 2022 and was likely to have stagnated in the fourth quarter.

Data released by the agency suggested the boost delivered to private consumption by government fiscal support measures, combined with the lifting of coronavirus pandemic-era lockdowns, had outweighed the economic fallout from the conflict in Ukraine.

“According to the current data, the economic slowdown over the [winter months] will be milder and shorter than expected,” the economy ministry said. “This country is showing what it’s capable of.”

Ruth Brand, head of the statistical agency, said gross domestic product expanded in 2022 by 1.9 per cent, adding that the growth came “despite the energy crisis and massive price hikes as a result of the war in Ukraine, material and supply bottlenecks and the continuing coronavirus pandemic”.

The number was higher than the mid-range forecast of 1.8 per cent from a Reuters poll of economists. Brand said German GDP had exceeded its pre-pandemic level of 2019 for the first time.

Germany had hoped for a big economic recovery in 2022 after two years dominated by the pandemic, but Russia’s invasion of Ukraine nearly 11 months ago dented those hopes. Business confidence slumped in the summer as gas and electricity prices surged and the threat of blackouts, gas rationing and production shutdowns loomed.

However, morale has improved considerably recently as a result of greater fiscal support from the government, a large drop in gas prices and a mild autumn and early winter that kept a lid on energy consumption.

The economy ministry said the economy had proven “gratifyingly resilient” in 2022, attributing its solid performance to “catch-up effects in the wake of the coronavirus pandemic and the easing of supply bottlenecks”.

It pointed to a 4.6 per cent increase in expenditure on private consumption over the previous year as Covid restrictions were lifted and people returned to restaurants and big cultural events.

“Decisive action last year helped us to take control of the crisis,” said Robert Habeck, economy minister. “We quickly put together legislative packages, mobilised large amounts of money to support the economy and provide relief to consumers.”

The statistical agency said it could not provide a definitive readout of economic output in the fourth quarter of 2022, but “based on our current knowledge, GDP stagnated in the fourth quarter . . . after growing in the third quarter”.

Michael Kuhn, a senior economist at the agency, said the German economy had “developed really well” in November, “[but] for December we’re seeing some indications that this development has declined”.

Nevertheless, economists said that all the data suggested Germany may avoid a recession, defined as two successive quarters of negative growth. Deutsche Bank said it expected that GDP would stagnate this year as a whole. “Nevertheless, 0 per cent forecast would mark quite an improvement compared with our forecast of -1 per cent at the end of last year,” it said.

But others were more downbeat. “The sheer fact that the German economy avoided the worst, unfortunately does not mean that all of the economic problems have disappeared,” said Carsten Brzeski of ING Bank.

He said Germany still faced big questions about its energy supply in the winter of 2023-24, as well as an increase in geopolitical risks that will weigh on global trade and an increasing lack of skilled workers.

In a further sign of the eurozone economy’s resilience at the end of last year, industrial production rose by 1 per cent in November, beating the 0.5 per cent rise forecast by economists polled by Reuters.

The figures published by Eurostat on Friday showed that the rebound was driven by capital goods, with the easing of supply chain disruptions helping car production.

Germany, by far the eurozone’s largest manufacturer, posted a 0.6 per cent expansion in industrial production for November.

Additional reporting by Valentina Romei