The German economy hit a brick wall at the end of 2022. Real GDP fell by 0.4% in the
fourth quarter, a sharp turnaround after the 0.5% increase in Q3. The Q4 drop was 0.2pp below the initial estimate, due mainly to awful numbers for retail sales and construction in December, which weren’t factored into the early data. The new data take some of the shine off the idea that Germany is showing resilience in the face of the energy shock and means that Q4 GDP growth in the EZ as a whole is likely to be revised down by 0.1pp, to zero.
Q1 will be tough too, not least because consumption will likely fall again. We now think
that GDP will fall by 0.3% quarter-on-quarter in Q1— taking Germany into a shallow technical recession—before rising by 0.5% and 0.4% in Q2 and Q3, respectively. We then look for a
slowdown in Q4, to 0.2%, as a correction in inventories bites. This would be consistent with
full-year growth of just 0.3%. This is better than the consensus, -0.5%, mainly due to our
assumption that the economy will return to growth from the second quarter onwards.
Melanie Debono, Senior Eurozone Economist
