Germany’s economy on brink of recession

Germany is on the verge of a recession after its economy shrunk more than expected at the end of last year.

Growth in gross domestic product declined by 0.4 per cent in the last three months of 2022.

A recession is the economy shrinking over two consecutive quarters, or six months. It can affect earnings and employment.

The figures were a downgrade from the initial estimate of a 0.2 per cent decline by Destatis, the official statistics agency. 

It also marks the second downgrade in Germany’s latest GDP figures in the past month. 

And fourth-quarter growth figures are the worst since early 2021, when the country was in the depths of Covid lockdowns.

The outlook sits in contrast to the UK, which narrowly dodged a recession at the end of last year, with latest figures showing that gross domestic product was unchanged between the third and fourth quarters of 2022.

The German federal statistics office said the dip was driven by stunted consumer spending and investment in buildings and machines that has been rocked by record high inflation.

Investment bank Nomura said: ‘The underlying picture is one of weak domestic demand, with both household consumption and capital investment declining on the quarter, and by more than many had expected.’

The German economy has traditionally relied on Russian energy and export demand from China, which has been undermined by the pandemic and the ongoing war in Ukraine.