EU’s largest economy shrinks

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The German economy contracted by 0.4% quarter on quarter in the final three months of 2022, according to the country’s Federal Statistical Office on Friday. The contraction was greater than the previously estimated 0.2% drop in GDP.

Analysts blame the lower-than-expected reading on persistently high inflation and lingering concerns about energy supplies, both of which are weighing heavily on household consumption and capital investment. According to data, German household spending fell 1.0% in the fourth quarter, while construction investment fell 2.9% and machinery and equipment investment fell 3.6%.

German exports of goods and services fell 1% year on year, owing to lingering supply chain disruptions and high energy prices.

According to analysts, the weaker-than-expected performance indicates a risk of recession, especially given that the current quarter may also see a contraction. A country is technically considered in recession after two consecutive quarters of negative growth.

Germany, Europe’s largest economy, experienced record inflation last year as a result of a surge in energy prices caused by a drop in supplies from Russia due to Ukraine-related sanctions.

According to official figures released on Wednesday, the annual inflation rate rose to 8.7% last month and 1% on a monthly basis. Analysts warn that Berlin may face further price increases in the coming months, when it must replenish gas storages for next winter without relying on Russian supplies.