German economy expected to skirt recession – economy ministry report

BERLIN (Reuters) -Germany is expected to narrowly escape recession and post modest growth in the first quarter of the year, according to an economy ministry report published on Friday.

“A technical recession of two negative quarters in a row appears to have been averted,” the ministry said.

Current forecasts predict a slight year-on-year increase in gross domestic product (GDP) for 2023 as a whole, it added. Leading economic institutes expect the German economy to grow 0.3% this year.

Economic indicators point to a noticeable pickup in the first quarter, with industrial and construction output driving growth, benefiting from an easing of material bottlenecks, falling energy prices and favourable weather conditions, the report said.

The institute’s Joint Economic Forecasts anticipate a 0.1% expansion in GDP in the first quarter. This follows a 0.4% contraction in the fourth quarter of 2022.

The ministry spoke of a “favourable start” to the year. The mild winter and high gas storage levels had contributed to sufficient gas availability in Germany and Europe, which was reflected in a noticeable drop in energy prices, the ministry said.

“Consumer sentiment is expected to continue its recovery in the coming months, although inflation-related losses in purchasing power continue to weigh on the economy,” the report said.

Inflation rates are expected to continue to ease in the coming months, although remaining at a high level. The current forecast range is 5.4% to 6.6% for inflation in 2023 and 2.1% to 3.5% for 2024.

The economy ministry sees risks to its economic outlook, such as weak private consumption, a deterioration of conditions in construction, recent problems in financial institutions and geopolitical uncertainty due to the war in Ukraine.

(Reporting by Maria Martinez and Reinhard Becker Editing by Miranda Murray and Christina Fincher)