German economic growth raises hopes of less severe recession
The German economy grew slightly more in the third quarter than suggested by preliminary figures on the back of consumer spending, adding to signs that a coming recession will not hit as hard as initially feared, data showed on Friday.
Europe’s largest economy expanded by 0.4 per cent quarter on quarter and by 1.3 per cent on the year, adjusted for price and calendar effects, the federal statistics office said.
Analysts polled by Reuters had expected the economy to grow by 0.3 per cent on the previous three months and by 1.2 per cent annually.
Household spending was the main reason for the increase, as consumers travelled and went out more ater nearly all pandemic restrictions had been lited.
“It’s by no means a foregone conclusion that the third quarter’s GDP growth marks the end of positive growth rates for the time being,” said VP Bank chief economist Thomas Gitzel, who added that the fourth quarter could also be positive.
Among retailers there has been a notable decrease in pessimism regarding the coming months, the Ifo economic institute found, and German retailers have reported that supply problems had eased slightly in November from the previous month. A GFK institute survey of consumer sentiment found that government energy relief measures had helped stabilise morale heading into December, and fears of over sharply rising energy prices had weakened somewhat.
However, the index is still near historically low levels, said Union Investment chief economist Joerg Zeuner, and consumers are not yet feeling the pinch of high energy costs, which will only be reflected in next year’s heating bills.
The government has predicted that the economy will grow by 1.4 per cent this year and contract by 0.4 per cent next year.
An economy ministry spokesperson told Reuters on Friday that current indicators continue to point to a recession in the six months through March.
“The preconditions for a mild course of the recession are that no acute gas shortage situation arises, that no difficult COVID developments occur, and that the supply chains continue to stabilise gradually,” added the spokesperson.
German consumer sentiment is set to barely change in December as government energy measures help stabilize morale at a level that is just above a record low set two months earlier and still signals declining consumption, a GFK institute survey showed on Friday.
The institute said its consumer sentiment index rose to negative 40.2 heading into December from a reading of negative 41.9 in November, and below forecasts from analysts polled by Reuters of negative 39.6.
October marked the lowest reading in over a decade at negative 42.8. A negative reading suggest a year-on-year drop in private consumption.
“The long-lasting fear of consumers regarding exploding energy prices has currently weakened somewhat, which has a slightly positive effect on the consumer climate,” said GFK consumer expert Rolf Buerkl. While a one-off gas relief payment for households in December and a cap on gas and electricity prices next year helped improve the mood, the situation remains tense and there will not be any significant, sustainable recovery in morale as long as energy supply doubts remain, added Buerkl.
The subindex measuring willingness to buy was the only one to fall in November, dropping to -18.6 from -17.5 in October, as consumers are still puting aside money in anticipation of exploding energy bills in the coming months, said the GFK.
Prices portal Verivox said last week that many German households face another 50 per cent-plus hike in power and gas costs in January due to the lag in suppliers passing on higher wholesale market prices and rising grid fees. The survey period was between Nov.3 and Nov.14, 2022.
The consumer climate indicator forecasts the development of real private consumption in the following month. An indicator reading above zero signals year-on-year growth in private consumption. A value below zero indicates a drop compared with the same period a year earlier. According to GFK, a one-point change in the indicator corresponds to a year-on-year change of 0.1 per cent in private consumption. The “willingness to buy” indicator represents the balance between positive and negative responses to the question: “Do you think now is a good time to buy major items?” The income expectations sub-index reflects expectations about the development of household finances in the coming 12 months. The additional business cycle expectations index reflects the assessment of those questioned of the general economic situation in the next 12 months.
Europe’s largest economy expanded by 0.4% quarter on quarter and by 1.3% on the year, adjusted for price and calendar effects