Despite headwinds in the summer, the German economy increased its pace. The gross domestic product (GDP) increased by 0.4 percent in the third quarter compared to the previous quarter and thus more than initially assumed, as reported by the Federal Statistical Office. In a first estimate, the Wiesbaden authority assumed a price-, seasonally- and calendar-adjusted increase in economic output of 0.3 percent.

Despite the ongoing corona pandemic, supply bottlenecks, rising prices and the war in Ukraine, Europe's largest economy grew as in the first two quarters of the year (plus 0.8 percent and plus 0.1 percent).

Growth in the period from July to September was mainly driven by private consumer spending. Despite high inflation and the energy crisis, consumers took advantage of the lifting of almost all corona restrictions in the third quarter, for example to travel more and go out, as the Wiesbaden authorities explained.

Companies invested significantly more in equipment such as machines. On the other hand, as in the second quarter, construction investments declined after adjustment for price, seasonal and calendar effects. High building prices and higher mortgage interest rates are dampening business.

No economic crash expected

Many economists expect a frosty winter half-year in Europe's largest economy. They assume a decline in economic output, but do not expect an economic crash like in the Corona crisis year 2020. At that time, gross domestic product shrank by more than four percent for the year as a whole.

"But slumps like those in the financial or corona crisis are only likely in the event of a gas shortage, and thanks to full storage facilities and, above all, considerable savings efforts by companies and households, we should be able to avoid that," said KfW chief economist Fritzi Köhler-Geib recently. Commerzbank chief economist Jörg Krämer also referred to the federal government's relief package. "I still expect a recession, but more than ever no economic collapse."

Inflation could dampen private consumption

The persistently high rate of inflation, which rose to 10.4 percent in October, is of particular concern. High inflation rates are a burden for companies and reduce the purchasing power of consumers. People can afford less for one euro. This can dampen private consumption as an important pillar of the economy. At the same time, according to economists, the weakening of the global economy is likely to put pressure on exports.

According to a forecast by the OECD, the organization of industrialized nations, global economic growth will be slowed down in the coming year by Russia's war of aggression in Ukraine. Accordingly, global growth in 2023 should only be 2.2 percent. That is significantly less than expected before the war. "Higher inflation and lower growth are the hefty price the global economy is paying for Russia's war against Ukraine," the study said.

Thanks to the growth of the past quarters, the federal government most recently expected an increase in economic output of 1.4 percent for the full year 2022. As a result of the expected weak winter half-year, a decline in gross domestic product of 0.4 percent compared to the previous year is predicted for the coming year.

Federal Statistical Office on GDP Federal Statistical Office GDP 2021 and budget deficit Federal Office time series GDP monthly reports Bundesbank Ifo business climate GDP 2nd quarter GDP 3rd quarter Federal Statistical Office on inflation in Germany Eurostat on inflation in the euro area Time series ECB key interest rates ECB explanations on inflation ECB video on inflation Communication Schufa survey GDP 3rd quarter