[Asia Economy Reporter Kwon Haeyoung] The German economy contracted in the fourth quarter of last year. Due to a decline in private consumption caused by inflation, the unexpected negative growth of Europe's largest economy has reignited concerns about a recession.
The German Federal Statistical Office announced on the 30th (local time) that the gross domestic product (GDP) in the fourth quarter of last year decreased by 0.2% compared to the previous quarter. This growth rate is lower than the 0.5% in the third quarter and also below experts' expectations of 0%. The annual economic growth rate for last year was recorded at 1.8%.
The main reason for the unexpected contraction of the German economy is the decline in private consumption. Inflation driven by rising energy prices eased for two consecutive months in November and December last year. However, the European Union (EU) consumer price inflation rate remained high at 9.6%, causing consumers to tighten their wallets. J?rg Kramer, Chief Economist at Commerzbank, analyzed, "Consumers could not avoid the weakening of purchasing power caused by inflation."
Experts predict that the German economy is likely to shrink for two consecutive quarters, including the first quarter of this year following the fourth quarter of last year. Thomas Gitzel, Chief Economist at VP Bank, said, "Although it is not as severe as initially expected, it is beginning to show that this winter is difficult," adding, "There will be no severe plunge in the German economy, but a slight recession is still on the table."
Major foreign media evaluated, "The German economy unexpectedly contracted," and concerns about a recession are being revived.
However, the German government expects the economic situation to improve from this spring. In particular, in the annual economic report released last week, the forecast for the 2023 annual GDP growth rate was revised upward by 0.6 percentage points from the previous -0.4% to 0.2%. Robert Habeck, German Minister for Economic Affairs, explained, "The government is cautious about high energy prices and interest rate hikes," but added, "The economic crisis triggered by Russia's invasion of Ukraine is currently manageable."
Despite the contraction of the German economy, the European Central Bank (ECB) is expected to continue its interest rate hike policy. This is because inflationary pressures in Europe remain high. The market expects the ECB to raise the benchmark interest rate by 0.5 percentage points next month.
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