German Economy Shows Signs of Recovery

Preliminary data from Germany’s statistics office reveals that the country’s economy contracted by a smaller-than-expected 0.1% in the third quarter. The decline in consumer spending was offset by an improvement in investment, resulting in a better outcome than economists predicted.

Revisions to previous quarters also played a role in avoiding recession, which was reported last winter. GDP figures for the first and second quarters of 2022 were revised upward. In the second quarter, the economy experienced a growth of 0.1%, while the initial data showed no growth. The first quarter was revised from a 0.1% contraction to stagnation. Moreover, the final quarter of 2022 saw a contraction of 0.4%, contributing to the challenging economic situation.

Compared to the same period last year, the German economy is now 0.3% smaller after adjusting for price and calendar variations.

Although household consumption expenditure was weaker during the quarter, there were positive contributions from investment in machinery and equipment, according to Destatis, the country’s statistics office.

Fritzi Koehler-Geib, the chief economist at KfW, credits the adaptability of German companies, collective energy-saving efforts, and effective government crisis management for preventing a more severe GDP decline. Koehler-Geib expects the economy to rebound next year due to declining inflation and rising incomes, leading to increased consumption.

Despite signs of recovery, the German economy still faces challenges in achieving sustained growth, primarily due to a sluggish manufacturing sector. The European Commission’s latest forecasts predict a 0.4% shrinkage in German GDP for 2023 as a whole, reflecting the ongoing difficulties.