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German economy holds up in 2022 despite Ukraine war fallout

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German economy holds up in 2022 despite Ukraine war fallout
People shop in Hanover during sales. Photo: picture alliance/dpa | Michael Matthey

The German economy grew a better-than-expected 1.9 percent in 2022, official data showed Friday, as government relief measures cushioned Europe's export giant from an energy crisis triggered by the Ukraine war.

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The expansion was slower than the 2.6-percent growth in 2021, with GDP "stagnating" in the fourth quarter as inflation surged following Russia's invasion of Ukraine, statistics authority Destatis said.

But it was better than the 1.8 percent forecast by analysts, as government interventions and a mild winter helped Germany weather the higher energy costs triggered by Moscow slashing crucial gas supplies.

Ruth Brand, president of Destatis, outlined the challenges faced by Europe's biggest economy, from "extreme energy price increases" to supply chain bottlenecks, rising food prices and a shortage of skilled workers.

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But she added: "Despite these difficult conditions, the German economy held up well overall in 2022."

Carsten Brzeski, head of macroeconomics at ING, also said the data "shows that for the entire year 2022, the catch-up effect after the end of lockdowns, both for consumption and production, outweighed the economic fallout from the war in Ukraine.

"In the final months of the year, fiscal support also cushioned the downswing."

'More resilient'

The soaring cost of gas and electricity has stoked inflation and weighed on industry and consumers in Europe's largest economy.

But substantial government interventions and a mild European winter have cushioned the blow and allayed fears of a major downturn.

"The German economy was or is more resilient than was maybe feared in the autumn," said Jan-Christopher Scherer, economist at the DIW think tank in Berlin ahead of the release of the figures. 

"There will not be a deep recession," Scherer told AFP.

With most indicators flashing red, the government itself had forecast in October that the economy would shrink 0.4 percent over the whole of this year.

But efforts to build up gas reserves in preparation for the winter have allowed Germany to skirt acute shortages.

A massive 200-billion-euro ($216 billion) support package announced in September to limit household energy bills and support businesses has also made a difference.

After the initial shock of seeing prices shoot up, consumers largely came to terms with higher prices while industry found "innovative" ways to save
energy, Scherer added.

Costs were nonetheless markedly higher than in recent years, a "burdensome factor" for industry, he said.

READ ALSO: German inflation unexpectedly slows down

'Losing out?'

Some analysts warn the reprieve may prove temporary given significant risks that lie ahead.

Germany will likely be unable to dodge a recession - two consecutive quarters in which the economy shrinks - a prospect that was likely around the
turn of the year, said Oliver Holtemoeller, deputy chief of the economic think tank IWH.

"The coming months will be difficult," he said, noting that the sharp increase in energy prices as Russia throttled gas supplies to Germany had pushed inflation to a peak of 10.4 percent in October last year.

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Such a rapid increase in consumer prices - a pace not seen in decades - would not leave Europe's largest economy "unaffected", Holtemoeller said.

The German auto industry association VDA has warned about the long-term consequences of higher energy prices for the flagship sector.

"Industry is the engine of Germany's prosperity and that engine needs energy," VDA president Hildegard Mueller said Wednesday.

Germany risks "permanently losing out" if it does not find a way to supply industry with affordable energy, she said.

Despite apparent robustness, "industrial production is still some four percent below its pre-pandemic level" of 2019, said Carsten Brzeski, head of
macroeconomics at ING.

READ ALSO: 10 ways to save money on your groceries in Germany

Drops in new orders, persistent high energy costs and China's shaky exit from its strict zero-Covid restrictions "all bode ill for the short-term
outlook", Brzeski said.

"The former growth engine of the German economy is stuttering and improvement is not really in sight," he said.

By Florian CAZERES and Sebastien ASH

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