German economy grew more than expected in second quarter

Germany's economy grew slightly in the second quarter, marking an upgrade from a previous estimate of stagnation, and pushing back the spectre of recession.

A person pays with an EC card at a German supermarket.
A person pays with an EC card at a German supermarket. Photo: picture alliance/dpa | Karl-Josef Hildenbrand

Output expanded by 0.1 percent in the April to June period, according to the federal statistics agency, which had previously projected zero growth.

The economy was propped up by both private and public domestic demand, with spending by the state up by 2.3 percent.

Private spending rose 0.8 percent from the previous quarter as the end of Covid-19 restrictions brought more tourism and outdoor dining.

Europe’s biggest economy has been slowing as inflation soars, with Russia’s invasion of Ukraine sending energy and food prices through the roof.

READ ALSO: German economy stalls as recession looms

Germany has been highly reliant on supplies of Russian gas to meet its energy demands, but Moscow has slowly dwindled supplies since the start of the war.

The threat that Russia could cut deliveries completely has raised the possibility of shortages over the winter and brought Germany closer to rationing supplies, with a punishing impact on business.

Bundesbank president Joachim Nagel had warned in a recent interview that although the German economy held up well in the second quarter, new supply chain problems would “further darken the outlook for the second half”.

Particularly, if the energy crisis were to worsen, “a recession appears probable for the coming winter”.

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German consumers warned to expect higher food prices

Groceries in Germany have already shot up in price by more than 16.6 percent compared to a year ago. But industry bosses expect prices to rise further - although they say they are fighting against unreasonable increases from large corporations.

German consumers warned to expect higher food prices

Life in Germany is getting significantly more expensive. As The Local reported this week, German inflation climbed again in August to 7.9 percent, according to the federal statistics agency Destatis. It came after consumer prices fell slightly in June and July. 

Energy prices, which have taken off since the Russian invasion of Ukraine, have had a “substantial impact on the high inflation rate”, Destatis said. Costs for household electricity and fuel rose by 35.6 percent in August 2022 compared to the same month a year ago.

However, food prices are also heavily affected – they have increased by around 16.6 percent, according to initial figures. 

The graph below by Destatis shows changes in consumer prices. 

Source: Destatis

READ ALSO: German inflation rises again as energy costs soar

According to retail giant Rewe, consumers in Germany will have to brace themselves for even higher food prices.

“We are currently seeing new price increases from manufacturers every week,” said Rewe CEO Lionel Souque on Wednesday ahead of a business event in Düsseldorf, reported Germany’s Tagesschau.

These increases are down to rising energy and raw material costs, as well as logistics and staff costs. 

However, Souque said that not every price increase is implemented. 

“We don’t wave through every price increase, but check whether it is reasonable,” he said.

Souque said the retail giant flights back if bosses feel the markups are not justified. Among multinational consumer goods manufacturers in particular, there are some looking to profit from the current price wave, he said.

“We are fighting against that,” the Rewe boss said. “Many multinationals are making more dividend income than they did last year.”

“Many (firms) come and announce price increases of 10 percent, and say Rewe should pass that on to the customer,” Souque reported.

“That’s totally unrealistic.”

He said that the majority of suppliers are behaving reasonably. “But we have a problem with the very large manufacturers who have the power to enforce demands,” he added.

READ ALSO: ‘€10-€15 for groceries’ -How price hikes are hitting consumers in Germany

Competitor Edeka has also warned its suppliers against excessive price demands.

“Food must not become a luxury good,” Edeka CEO Markus Mosa previously said.

Rewe has already announced that it would not pass on all the increases to customers, and would therefore accept an impact on profits.

Change in consumers’ behaviour

Rising inflation also has consequences for consumers’ shopping behaviour.

Customers in Germany have been switching from branded products to supermarkets’ own brands, and they are paying more attention to promotional prices.

There is also trend towards discounters, said Rewe boss Souque. The Rewe subsidiary and discounter Penny, for example, is currently doing better in terms of sales than in the previous year, he said.