British media: Germany on the verge of recession

Mar 08, 2023

According to the British "Times" website daily report, at the end of last year, the German economy contracted more than expected, and the country is currently facing a recession.


According to the report, the latest data from Germany's official statistics agency - the German Federal Statistical Office - shows that in the Q4 of 2022, the gross domestic product of Germany, Europe's largest economy, fell by 0.4% year-on-year. That was worse than the initial estimate of a 0.2% decline.


Germany's economic growth lost momentum late last year as high inflation forced people to cut spending and led to a drop in business investment in the construction sector, the German Federal Statistical Office said.


According to the report, another quarter of contraction in the German economy in the first quarter ended March would mean that Germany officially fell into recession for the first time since the outbreak began.


Inflation in Germany hit a 40-year high as the ongoing conflict between Russia and Ukraine sent global energy prices soaring. Before the Russia-Ukraine conflict, Germany and Italy were the European economies most reliant on imports of cheap Russian gas to power their industrial enterprises.


The report pointed out that Germany's growth data in the Q4 of last year was the worst since the beginning of 2021, when the country was still suffering from the impact of the COVID-19 epidemic blockade measures. Germany's overall economy will grow by 1.8% in 2022 compared to the last year, as economic expansion begins in most parts of Germany in early 2022, helped somewhat by the lifting of epidemic restrictions.


Germany's economic model, long based on cheap Russian energy, a devalued currency and Chinese import demand, has been disrupted by the COVID-19 pandemic, the year-long conflict between Russia and Ukraine and rapidly rising global interest rates, the report said. This economic model in Germany has been disrupted.


Germany's imports and exports both fell by around 1% in the Q4 of last year due to "difficult international conditions, including disruptions in supply chains and high energy prices, leading to reduced trade in chemical products," Germany's statistics office said.


However, Germany's recession is likely to be short-lived, with most forecasters expecting the German economy to start growing again by the middle of this year. British consultancy Pantheon Macroeconomics Research expects German GDP to fall by 0.3% in the Q1 of this year, before growing by 0.4% to 0.5% for the rest of the year.


Germany's SPD-led coalition government has announced bold moves such as caps on household energy prices and plans to wean itself off reliance on Russian imports to boost economic resilience.


The IMF expects the German economy to stagnate this year, with annual growth of just 0.1%, before rebounding to 1.4% in 2024.


Carsten Brzeski, head of macroeconomics at ING, said any rebound in euro zone growth would likely be weaker than suggested by the latest survey data released at the beginning of the year. Brzeski said: "The number of German industrial orders has fallen since the beginning of 2022. Although consumer confidence has improved recently, it is still close to historical lows. Purchasing power will continue to decline in 2023. The tightening of monetary policy The full impact is yet to be felt."


He said: "We believe that the risk of the German economy contracting again in the Q1 of this year and then falling into a technical recession is high, and the German economy is still a long way from a strong rebound."


BASF, the world's largest chemical group, announced plans to close several plants in the country and cut 2,600 jobs. This is said to be because operations in Germany have become too bureaucratic and costly. This has dealt a further blow to Germany's status as Europe's economic powerhouse.