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Germany dodges recession but inflation climbs to 11.6%

Germany escaped the threat of recession in its third quarter thanks to unexpected growth, but the economy remained in trouble as high inflation fueled by a difficult energy standoff with Russia soared, data from Friday (28 October) showed.

According to the federal statistics office, October’s consumer prices were 11.6% higher than the previous year. They are harmonised with those of other European Union countries. Reuters polled analysts and forecast 10.9%. This is unchanged from the previous month.

Friday’s warning by the Ifo economic institute was made despite the fact that a survey revealed that fewer companies in Germany were planning to increase prices in October, despite the fact that inflation has not reached all consumers.

Economists predicted that inflation would remain in double-digit territory for a while. This keeps pressure on the European Central Bank to keep raising interest rates after it raised them to the highest level since 2009.

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Thomas Theobald, IMK institute, stated that “it is not yet clear whether inflation has peaked,” despite the recent fall in natural gas prices raising hopes for this.

After the invasion of Ukraine, a plunge in Russian energy imports has caused German energy prices to spiral. This has resulted in inflation reaching its highest level in over 25 years. It also fuelled concerns about a possible gas shortage this winter. Storage facilities are already full to capacity.

The statistics office stated separately that despite the headwinds, gross national product experienced unexpected growth of 0.3% during the third quarter, compared to the second.

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Economists were shocked by the unexpected reading. According to a Reuters poll, economists were surprised by the unexpected finding.

Q4 CONTRACTION FORECAST

According to statistics office, the economy “continued its strength despite difficult global economic conditions …. disrupted supplies chains, rising prices, and the war in Ukraine.”

It said that the main driver of economic output in the third quarter was private consumer spending. Seasonally adjusted GDP rose 1.2% year-on-year, beating the forecasts of 0.8% by analysts.

It increased 0.1% quarter-on-quarter in the last quarter.

“The German economy kept it head above water …,” VP Bank chief economist Thomas Gitzel stated.

“But, the burdens in the next quarters are enormous,” he stated, noting that the data for the third quarter had only delayed the onset of recession in Germany or the euro area.

According to Ifo, the German economy will shrink by 0.6% during the fourth quarter.

The government’s most recent forecast predicted growth of 1.4% in this year and 0.4% next year. A spokesperson for the economy ministry said Friday that it was too soon to evaluate the impact of the GDP data.

Jens-Oliver Niklasch, LBBW bank, stated that “the recession is likely to hit in winter but it may be less severe than initially feared.”

He attributed the third quarter shock growth to the lifting of COVID-19 restrictions and the relief measures that were implemented in the summer.

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EU Reporter publishes articles from a variety of outside sources which express a wide range of viewpoints. The positions taken in these articles are not necessarily those of EU Reporter.

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