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Some Good News?

Germany's economy grew by 1.9% in 2022 despite the crisis and is moving away from recession

The German economy grew by 1.9% last year compared to 2021, despite the difficulties arising from the war in Ukraine, and by 0.7% compared to 2019, the year before the coronavirus pandemic crisis, according to provisional data released today by the Federal Statistical Office (Destatis). That figure, coupled with the stagnation in GDP detected at the end of the year, means Germany could be spared a recession this winter.

“The overall economic situation in Germany in 2022 was marked by the consequences of the war in Ukraine, such as extreme rises in energy prices,” Ruth Brand, president of Destatis, told a press conference. She added that “this was compounded by acute supply and material bottlenecks, massive price increases, for example for food, as well as shortages of qualified personnel and the persistent coronavirus pandemic, even though it has been receding over the course of the year”. “Despite these still difficult conditions, the German economy overall was able to hold up well in 2022,” he said.

Finance Minister Robert Habeck and Finance Minister Christian Lindner assessed the data optimistically. “According to the data currently available to us, the economic slowdown in the winter half-year will be milder and shorter than expected,” Habeck emphasised. “Growth of 1.9 per cent shows that the 2022 state aid is having an effect,” Lindner added. It is now important to initiate an economic turnaround. This included tax incentives for investment and “less red tape”.

Despite the loss of purchasing power due to record inflation of 7.9 per cent, consumers in particular boosted the economy last year with consumer spending up 4.6 per cent. In the early years of Covid, many people had saved extra money from cancelled trips, restaurant visits or concerts, which they were now spending again, at least partially. The household savings rate fell by about four percentage points to 11.2 per cent compared to the previous year, bringing it back to the pre-Covid level. In addition, companies invested 2.5% more in equipment such as machinery and vehicles. In contrast, construction spending fell by 1.6% due to higher borrowing costs and supply bottlenecks. Exports increased by 3.2 per cent. However, as imports rose more, by 6.7%, the conclusion is that foreign trade held back economic growth.


But the consequences of the Ukrainian war in terms of inflation and the energy crisis continue to weigh on businesses. “Many companies were looking at an abyss in 2022,” says Dirk Jandura, president of the German Association of Wholesalers, Foreign Trade and Services (BGA). “We have not crashed, but we have not yet crossed the valley of the impending slowdown. The German economy “hasn’t done too badly” at the end of 2022, chief economic expert Monika Schnitzer said in a recent interview with Reuters. It had managed to avoid a gas supply bottleneck, she said. “And it is certainly not to be expected that we will have such a gas shortage this winter either.”

For the current year, many experts expect a slight recession. However, it is unlikely to reach the severe economic slump that was expected at times. “Economic growth in 2023 will be significantly weaker and close to stagnation,” says Sebastian Dullien, scientific director of the IMK Institute, which is close to the trade unions. This is because the economy is only just getting over the energy price crisis. The Kiel Institute for the World Economy (IfW) forecasts growth of 0.3 per cent for the year. The Ifo Institute in Munich and the RWI in Essen, meanwhile, both forecast contractions of 0.1 per cent for 2023.