‘Gratifyingly resilient’ German economy dodges recession for now

Germany’s economic output stagnated at the end of 2022 but grew 1.9 percent over the whole year, fanning hopes it will avoid a winter recession. “Economic development in Germany proved to be gratifyingly resilient last year in the face of the energy crisis and supply chain problems,” the economy ministry said. “There are increasing signs that the economic slowdown in the winter months will be milder than previously expected,” the ministry added, but warned that consumers will increasingly begin to feel the effects of strong inflation, which is set to weigh on the economy at the start of the year. The government will present its forecast for economic development in 2023 on 25 January.

German business confidence had slumped during the summer as a result of drastic energy price increases — resulting in fears of a severe recession usually defined by two successive quarters of negative growth. But sentiment has improved significantly since, following the government’s massive fiscal support programmes and a drop in energy prices due to mild weather. Some economists said the data suggests Germany may dodge a recession, while others warned the worst impacts of the crisis are yet to come. Stefan Kooths from the Kiel Institute for the World Economy (IfW) said Germany’s economy will start the year at a sluggish pace given that inflation puts a damper on private consumption. “Only in the second half of the year can a slight recovery be expected,” he said.

Policymakers, consumer protection groups, and social care services have warned that the energy price hike would result in a recession, massive social hardships, and even unrest. But the government launched massive relief packages for citizens and companies, and protests have remained limited in scope and scale so far.