Status: 02/24/2023 09:02 a.m
At the end of last year, the German economy developed worse than initially calculated. The main reason was that private consumer spending fell due to high inflation.
At the end of 2022, the German economy shrank more than initially assumed. The gross domestic product (GDP) fell from October to December by 0.4 percent compared to the previous quarter, as the Federal Statistical Office announced today. In a first estimate at the end of January, the authority had only reported a shrinking of economic power by 0.2 percent.
“The momentum of the German economy weakened significantly towards the end of the year,” it said. This was mainly due to the fact that private consumer spending fell by 1.0 percent compared to the previous quarter due to high inflation. “The continuing strong price increases and the ongoing energy crisis weighed on the German economy at the end of the year,” emphasized the office.
Looming recession?
Should GDP also fall in the current quarter and thus decline for two quarters in a row, Germany would be in a technical recession according to a rule of thumb. Because the state is providing billions of euros in relief for private households and companies with the sharp rise in energy costs, some experts are more optimistic about the future for 2023 as a whole than they were in autumn.
The federal government assumes that the economy will grow by 0.2 percent this year. However, due to the effects of the energy crisis, this would only be a fraction of the 1.8 percent growth in 2022.
State budget again in the red
In 2022, the German state again spent more money than it took in, with the billions in aid in the energy crisis in particular putting a strain on the budget. The federal budget in particular was affected, while the federal states, municipalities and social security funds all recorded funding surpluses. The deficit totaled 101.3 billion euros and was thus 32.9 billion euros lower than in the previous year.
In relation to total economic output, the federal, state, local and social security deficits were 2.6 percent. The Wiesbaden authority thus confirmed an initial estimate.
Despite the deficit, however, Germany once again complied with the European debt rule after the outliers in the Corona years 2020 and 2021. The European Stability and Growth Pact allows the EU states to have a budget deficit of no more than three percent and a total debt of no more than 60 percent of nominal GDP. Due to the stress caused by the corona pandemic, these rules are currently suspended until 2024, and a reform of the rules is being discussed in the European Union (EU).