German Economy Contracts More Than Expected In Q4

The German economy contracted more than expected as new restrictions imposed at the end of the year dampened household spending, data released by Destatis revealed on Friday.

Gross domestic product fell 0.7 percent sequentially in the fourth quarter, reversing the 1.7 percent expansion in the third quarter. Economists had forecast the economy to contract 0.3 percent.

On a yearly basis, GDP grew 1.4 percent, but slower than the 2.9 percent expansion registered in the third quarter.

Compared to the end of 2019, the quarter before the start of the Corona crisis, GDP was 1.5 percent lower in the fourth quarter of 2021.

GDP growth for the whole of 2021 was revised marginally to 2.8 percent from 2.7 percent estimated on January 14.

Earlier, the government had downgraded its growth outlook for 2022 to 3.6 percent from 4.1 percent.

Private consumption in particular decreased in the fourth quarter, while government consumer spending increased. Construction investments fell compared to the third quarter, data showed. Detailed results for the fourth quarter are due on February 25.

With this weak fourth quarter, the likelihood of Germany being in an outright recession at the turn of the year has increased, Carsten Brzeski, an ING economist said.

Even if the economy were to fall into a technical recession, this recession will be mild and short-lived and is unlikely to harm the labor market, the economist added. “On the contrary, we stick to our view that the German economy will stage an impressive comeback in the spring.”

Andrew Kenningham, an economist at Capital Economics, said, “We doubt that Germany’s recovery will be very strong this year because supply-chain problems are likely to clear only slowly, but also because of ongoing Covid concerns and high inflation.”

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