Recession fears return after German economy shrank 0.4% in fourth quarter

Germany\’s economy has taken a hit in the fourth quarter of 2022, with revised figures showing a 0.4% contraction in Gross Domestic Product (GDP). This is the second downward revision in the last month and is the biggest quarterly decline since the start of 2021. High inflation and a drop in consumer spending and investment in buildings and machinery were the main factors leading to the contraction. This news has cast doubt over Europe\’s biggest economy\’s ability to avoid a recession and recover quickly from its energy crisis.

Recent surveys of businesses and consumers have shown a more optimistic outlook for the start of the year, suggesting Europe may be more resilient to the economic fallout of the Ukraine crisis. However, economists remain sceptical that the economy has enough momentum to avoid another fall in first-quarter GDP, resulting in a technical recession.

Destatis noted that the sharp rise in energy prices was particularly noticeable in private consumer spending, which fell 1% in the three months to the end of December. GfK\’s consumer confidence index rose to minus 30.5 in January, but is still well below the positive scores of less than two years ago. It remains to be seen how the economy will fare in the coming months.

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