Private consumption contributes
German economy grows unexpectedly strong in summer
11/25/2022, 8:12 am
Despite headwinds, the German economy grew more strongly than initially assumed in the summer. In the third quarter, gross domestic product increased by 0.4 percent compared to the previous quarter. The overall prospects are still bleak.
Despite record inflation and delivery bottlenecks, the German economy grew more strongly in the summer than initially assumed. The gross domestic product rose by 0.4 percent from July to September compared to the previous quarter, as reported by the Federal Statistical Office. In a first estimate from the end of October, the authority had reported growth of only 0.3 percent. Consumers gave a noticeable boost to economic growth with their spending. Private consumption increased by 1.0 percent compared to the previous quarter. Nevertheless, the overall outlook is bleak.
In the current final quarter of 2022 and the beginning of next year, most experts expect the gross domestic product to shrink. However, the recent rise in the IFO business climate index signaled that the recession could be milder than initially assumed due to the energy crisis resulting from the Ukraine war.
Brakes on gas and electricity prices have a positive effect
Economic power was better in the summer quarter than the federal government had expected in its autumn projection, as a spokesman for the Federal Ministry of Economics explained. “The main reason for this is the currently ongoing good private consumption,” said a spokesman. The statistics showed the strong resilience of the German economy against the background of the war in Ukraine and the energy crisis.
“Many supply contracts for Russian oil, gas and coal could be converted.” However, current economic data continued to signal a recession in the winter half-year. “The prerequisite for a mild recession is that there is no acute gas shortage, that there are no difficult corona developments and that the supply chains continue to gradually stabilize.”
In addition, the planned brakes on gas and electricity prices would have a positive effect “because they specifically relieve consumers of their down payments for electricity and gas/heat,” it said. Meanwhile, the buying mood of Germans brightened again shortly before the start of the hot phase of the Christmas business, but remained close to its record low.
Foreign trade slowed the economy
The barometer for consumer sentiment in December rose by 1.7 to minus 40.2 points, as reported by the GfK market researchers in their monthly survey of 2,000 consumers. Even after the second increase in a row, it remains close to the historic low of 42.8 points reached in October. “This seems to have brought the consumer climate crash to an end, even if the level of the indicator remains very low,” said GfK expert Rolf Bürkl.
Foreign trade slowed the economy in the summer as exports rose 2.0 percent, slower than imports, at 2.4 percent. Investments in equipment – i.e. above all in machinery, equipment and vehicles – climbed by 2.7 percent, while construction spending fell by 1.4 percent and thus fell for the second quarter in a row.