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Germany 'flirting with recession' – economic fears spiral for EU heavyweight


The German economy shrank during the last three months of 2021 with GDP falling 0.7 percent. According to the Federal Statistics Office, falling household consumption has been a key part of this with recovery during the summer coming to a halt due to the fourth wave of Covid. Angel Talavera, Head of European Economics at Oxford Economics, explained Germany was “hit early” by the Delta variant with “the country imposing some harsher and earlier restrictions than other European countries, which weighted on growth in (quarter four).” Germany has also been particularly badly hit by global disruptions to supply chains with the country having a large reliance on manufacturing.

This week the International Monetary Fund cut Germany’s predicted growth for 2022 by 0.8 percent, naming supply chain bottlenecks as the main reason.

Carsten Brzeski, Global Head of Macro, at ING Research said Germany was now “flirting with recession.”

In a briefing note he wrote: “With this weak fourth quarter, the likelihood of Germany being in an outright recession at the turn of the year has increased.

“High energy prices will continue weighing on private consumption, even if social restrictions are lifted in the coming weeks.”

Since the start of January Germany has had some positive indicators, with data suggesting improvements in manufacturing.

Mr Talavera suggested there were signs “the German economy is already recovering” reducing the chances of a recession.

In stark contrast to the difficulties facing Germany, France meanwhile has seen growth surge.

GDP in the German neighbour soared seven percent across 2021, its strongest growth in over 50 years.

France’s economy previously saw an eight percent contraction during 2020 due to the toll of lockdowns and Covid restrictions.

The strength of the French economy could serve as a major boost to President Macron if he decides to run for re-election this year.

Close attention will be paid to the more recent impact of Omicron with Mr Talavera warning the “severity” of France’s Covid wave could lead to growth in the first months of 2022 coming in “very weak” or even `negative.

Among Europe’s economies Spain also emerged as a surprise winner today with GDP growth beating expectations to rise by two percent in the final quarter of 2021.

The country has also seen rising employment as its service sector recovers.





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