At the end of last year, the economy in Germany developed worse than initially calculated. The gross domestic product (GDP) fell in the fourth quarter of 2022 compared to the previous quarter by 0.4 percent, said the Federal Statistical Office on Friday. In a first estimate, the Wiesbaden authority had assumed a decline in economic output of 0.2 percent.

According to the statistics office, the momentum of the German economy weakened significantly at the end of the year. This was mainly due to the fact that private consumer spending fell by 1.0 percent compared to the previous quarter due to high inflation.

If GDP continues to shrink in the current quarter – and thus two quarters in a row – Germany would be in a technical recession according to a rule of thumb. For 2023 as a whole, however, most experts no longer see the situation as gloomy as in autumn, despite the Ukraine war and ongoing supply bottlenecks. The German government, for example, expects the economy to pick up by 0.2 percent this year. However, due to the consequences of the energy crisis, this would only be a fraction of the growth of 1.8 percent in 2022.

After all, the consumer mood in Germany is now on a recovery course. Consumers assessed the economy and their own income expectations much more positively than recently, according to the study by the Nuremberg-based consumer research company GfK on the consumer climate, which was published on Friday. On the other hand, the propensity to buy - i.e. the willingness to buy larger assets - has recently moved up and down and has recently increased only slightly.

Pessimism is gradually fading

"Consumer pessimism, which reached its absolute peak in autumn last year, is visibly disappearing," said GfK consumer expert Rolf Bürkl. The consumer climate has continued to rise despite ongoing crises such as the Ukraine war, a weakening global economy and high inflation rates. "It thus clearly remains on the road to recovery if the level remains low."

Bürkl blamed the improved consumer sentiment above all on the fact that prices did not rise quite as strongly as expected. "Recently fallen prices for energy, but also reports that a recession in Germany can now be avoided this year, according to experts, are slowly returning optimism," said the expert.

Despite the increased expectations, the consumer climate in Germany remains at a comparatively low level. The Nuremberg researchers indicate consumer sentiment for March with a value of -33.5. This is an increase of 3.3 points compared to February. In pre-crisis times, the value for the consumer climate was relatively constant at around +10.

According to the GfK researchers, private consumption will probably not be able to make a positive contribution to economic development in Germany this year. And this despite the fact that expectations for the economy have risen significantly with a plus of 6.6 points and exceeded the long-term average of the zero line for the first time.