German output shrinks 0.1% in third quarter

Stay informed with free updates

Simply sign up to the German economy myFT Digest — delivered directly to your inbox.

The German economy contracted in the three months to September as weaker household consumption offset increased investment in equipment and machinery in Europe’s largest economy.

The 0.1 per cent decline in gross domestic product from the previous quarter was milder than the 0.2 per cent drop forecast by economists in a Reuters poll, but it still confirmed Germany’s position as one of the world’s weakest major economies.

Germany’s key manufacturing sector has been hit by a jump in energy costs linked to a shift away from Russian gas imports. Recent falls in inflation from record highs after Moscow’s full-scale invasion of Ukraine have still not boosted activity significantly, while consumers and businesses are also grappling with rising borrowing costs, falling house prices and lower exports to China.

“Despite falling inflation and stronger wage increases, private consumption is unlikely to recover for the time being,” said Jörg Krämer, chief economist at German lender Commerzbank, pointing to a recent fall in already weak consumer confidence.

The shrinking German economy is expected to offset growth in southern European countries such as Spain, where third-quarter output expanded 0.3 per cent, leading to a stagnation in overall eurozone GDP when quarterly figures for the bloc are released on Tuesday.

“It still seems likely that eurozone GDP contracted slightly,” said Andrew Kenningham, an economist at consultants Capital Economics, adding that the risks to his forecast for a 0.2 per cent contraction were “skewed to the upside”.

Germany’s federal statistical agency also revised up GDP figures for the previous two quarters, indicating that the economy did not shrink in the first half of the year as initially indicated.

However, it said German output was still 0.3 per cent lower than a year earlier. That contrasts with the rapid expansion of the US economy, which last week reported 4.9 per cent annualised third-quarter growth.

“Germany’s economy is once again teetering on the brink of a technical recession,” said Claus Vistesen, an economist at research group Pantheon Macroeconomics. “Consumption does not appear to be rebounding, as we had otherwise expected, in line with falling inflation — at least not yet.”

The IMF this month predicted Germany would be the worst-performing major economy this year, slashing its GDP forecast to a contraction of 0.5 per cent, citing lower demand from its trading partners and weakness in sectors that are sensitive to high interest rates.

There are signs of an easing in the cost of living crisis that has hit households across Europe. Spanish inflation was below forecast, despite hitting a six-month high of 3.5 per cent in October. In North Rhine-Westphalia, Germany’s most populous region, consumer price growth slowed more than expected to 3.1 per cent, down from 4.3 per cent a month ago.

Eurozone inflation is expected to fall from 4.3 per cent in September to a more than two-year low of 3.4 per cent when October price data for the bloc is released on Tuesday.