High inflation dampens people’s mood to spend. The sharp increase in energy prices is also having a negative impact on companies. Nevertheless, the German economy is growing in the summer – contrary to expectations.
Despite the energy crisis and high inflation, the German economy grew surprisingly in the third quarter. The gross domestic product (GDP) rose by 0.3 percent compared to the previous quarter, as the Federal Statistical Office announced in a first estimate on Friday. In view of the economic consequences of the Ukraine war, economists had expected a decline in economic output on average. They expect Europe’s largest economy to shrink in the coming quarters and slide into recession.
After the slight increase of 0.1 percent in the second quarter, the German economy held its own despite difficult global economic conditions with the ongoing corona pandemic, disrupted supply chains, rising prices and the war in Ukraine, the Wiesbaden authority explained. The economic output was primarily supported by private consumer spending.
In a year-on-year comparison, GDP adjusted for price, seasonal and calendar effects even exceeded the level before the Corona crisis for the first time.
Economists assume that the German economy is facing a hard winter. Consumer sentiment has recently stabilized somewhat. According to GfK consumer researchers, the situation remains tense. “As long as inflation remains high and there are doubts about an unrestricted energy supply, the consumer climate will not be able to noticeably and sustainably recover,” said GfK consumer expert Rolf Bürkl.
The high energy prices are also a growing burden for many companies in Germany. The mood in the economy deteriorated again in October. The Ifo business climate index fell slightly by 0.1 points to 84.3 points compared to the previous month. “The mood in the German economy remains gloomy,” commented Ifo President Clemens Fuest.
For 2022 as a whole, forecasts predict growth for the German economy. For the coming year as a whole, economists are expecting a decline in economic output. Although the looming economic downturn is likely to be more severe than in many other European countries, according to a number of economists, it will not be nearly as bad as in the Corona crisis year 2020. At that time, the gross domestic product in Europe’s largest economy had shrunk by more than four percent.
The federal government still expects economic growth of 1.4 percent for this year, with a decline of 0.4 percent expected in the coming year. However, the labor market is still robust. The traffic light coalition wants to support consumers and companies because of the high energy prices with a “defense shield” of up to 200 billion euros.
When it comes to pensions, there are major regional differences. The pension gap between women and men in western Germany is particularly large. Another long-term trend seems to have stopped for the time being.
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