Germany economy recession
central bank headquarters

German economy to enter recession in Q4 2022

Germany’s economy, the largest in Europe, is expected to contract in the fourth quarter of 2022 and enter a recession, as well as the first quarter of 2023, Deutsche Bundesbank, said on Wednesday (Nov. 23) in a monthly report. 

The country’s central bank stressed that the “extent of the recession is extremely uncertain.” According to the report, uncertainty about energy supply, as well as high consumer prices weighed on the economy. However, Bundesbank noted that a gas shortage “can probably be avoided.”

The central bank also noted that inflation continued to surge and warned that the double-digit inflation in the country could “even last into the new year.”

Still, the bank noted the inflation rate could be “dampened” by the gas price brake, under which households would see a basic quota of 80% of their previous year’s gas consumption.

Prior to the Ukraine conflict, Russia accounted for 55% of Germany’s gas supply. That number is being reduced, but German industry has warned shortages could lead to production problems. 

The Bundesbank’s forecast of a recession matches recent remarks analyses from leading German economic research institutes.

Last month, Economy Minister Robert Habeck told reporters in Berlin that Germany’s would shrink 0.4% next year rather than grow by 2.5% as had been forecast this spring. Growth forecasts for 2022 have also been adjusted downward to 1.4%, from a previous forecast of 2.2%.

More recently, Germany’s private sector activity continued to remain in contraction in November, flash survey data from S&P Global showed on Wednesday.

European Central Bank (ECB) Vice-President Luis de Guindos remarked on Wednesday (Nov. 23) that the euro area’s economy is likely to contract in the fourth quarter of 2022 and the first one of 2023 before picking up. The ECB official was speaking at Deloitte Touche Tohmatsu Limited-organized event in Madrid dedicated to changes in the financial sector.

With reporting by DW, Bloomberg