Germany avoided recession in the third quarter with unexpected growth, but the economy remained choppy as high inflation fueled by a painful energy standoff with Russia surged, according to data released on Friday.
According to the federal statistics office, consumer prices in October were up 11.6% year on year when compared to other European Union countries. Reuters polled analysts, who predicted 10.9% growth, which was unchanged from the previous month.
The Ifo economic institute warned on Friday that the full impact of inflation had not yet reached consumers, despite a slightly lower number of companies in Germany planning price increases in October, according to its survey.
Economists predicted that inflation would remain in the double digits for some time, putting pressure on the European Central Bank to keep raising interest rates after raising them to their highest level since 2009.
“It is not yet clear that inflation has peaked, even if the recent decline in market prices for natural gas has raised hopes for this,” said Thomas Theobald of the IMK institute.
A drop in Russian energy imports following the invasion of Ukraine has sent energy prices spiraling in Germany, pushing inflation to its highest level in over 25 years and fueling fears of a gas shortage this winter, despite storage facilities being nearly full.
Despite the slowdowns, GDP increased unexpectedly by 0.3% in the third quarter compared to the second, according to the statistics office.
The reading surprised economists. According to a Reuters poll of analysts, they had forecast a 0.2% contraction for Europe’s largest economy after numerous warnings of a looming recession.
According to the statistics office, the economy “continued to hold its own despite difficult global economic conditions…. disrupted supply chains, rising prices, and the war in Ukraine.”
According to the report, private consumer spending drove economic output in the third quarter. GDP increased 1.2% year on year in seasonally adjusted terms, exceeding analysts’ forecast of 0.8% growth.
It increased by 0.1% quarter on quarter in the previous quarter.
“The German economy kept its head above water…,” VP Bank chief economic Thomas Gitzel said.
“However, the burdens for the coming quarters are immense,” he said, adding that the third quarter data had only postponed the arrival of a recession in Germany and the euro zone.
According to Ifo, the German economy will contract by 0.6% in the fourth quarter.
The government predicted 1.4% growth this year and a 0.4% decline next year in its most recent forecast. On Friday, a spokesperson for the economy ministry stated that it was too early to assess the implications of the latest GDP data.
“The recession is now likely to hit in the winter, but it may not be as severe as initially feared,” said LBBW bank’s Jens-Oliver Niklasch.
He attributed the unexpected third-quarter growth to the lifting of restrictions imposed to combat the COVID-19 pandemic and relief measures implemented over the summer.
(Adapted from Bloomberg.com)