Fears that "recession is in the making" following German GDP figures

(Alliance News) - ING said that a "recession is in the making" in Germany, after new figures showed that the economy saw a worse contraction than initially thought in the final quarter of 2022.

According to Destatis, German gross domestic product fell by 0.4% in the fourth quarter from the previous quarter, worsening from a preliminary forecast of a 0.2% contraction.

In the third quarter, GDP grew 0.5% from the second quarter. The German economy had grown 0.1% in the second quarter and 0.8% in the first.

This marks the first contraction since the first quarter of 2021.

On an annual basis, the German economy grew 0.9% in the fourth quarter, slowing from 1.4% annual growth seen in the third quarter.

ING said: "The third estimate of German GDP growth in the final quarter of 2022 shows that celebrating resilience was a bit premature." It added that, in fact, a "technical recession is in the making."

ING explained: "The German economy has surprised by showing more resilience than feared, despite facing a long series of crises. However, while this resilience, driven by fiscal support and warm winter weather, has prevented the economy from falling into a deep recession, it is definitely no guarantee for a strong rebound anytime soon. In fact, even though sentiment indicators have increased in recent months, there is overwhelming evidence of a still weak economy."

Based on this and recent manufacturing purchasing managers' index data, ING said it now expects the German economy to contract once again in the first quarter of 2023.

On Tuesday, S&P Global reported that Germany's flash manufacturing PMI, which measures the overall health of the manufacturing sector, fell to 46.5 points in February from 47.3 points in January. This is below the 50.0 contraction mark and represents a three-month low.

Looking further ahead from the first quarter of 2023, ING said data suggests that the German and eurozone economies are in the middle of a typical cyclical recovery, however it fears that we are in the middle of a structural transition.

"If we are right, any rebound this year will be softer and more short-lived than many expect, and subdued growth rather than a strong rebound remains the base case," ING explained.

However, on Friday, Growth for Knowledge said consumer confidence remained on the path to recovery, with both economic and income expectations showing a significant increase.

GfK forecasts a reading of minus 30.5 points for its consumer sentiment tracker in March, up 3.3 points from a revised figure of minus 33.8 points in February.

Consumer sentiment is therefore continuing to increase, this is the fifth increase in a row.

"Despite ongoing crises, such as the war in Ukraine, a weakening global economy, and high inflation rates, consumer sentiment has once again increased noticeably. It thus remains firmly on the path to recovery, even if the level remains low. Consumer pessimism, which peaked last fall, is fading," explained GfK consumer expert Rolf Burkl.

ING noted that whilst there has been an improvement in consumer confidence, it "is still close to historic lows."

"Today’s numbers mark the first part of what could become a technical recession in Germany. We think that the risk of yet another contraction in the first quarter and, thus, a technical recession is high and that the German economy is still miles away from staging a strong rebound," ING concluded.

By Sophie Rose, Alliance News reporter

Comments and questions to [email protected]

Copyright 2023 Alliance News Ltd. All Rights Reserved.