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January 28, 2022

The German economy contracted more than expected in the fourth quarter of last year, data showed on Friday, as restrictions to slow the spread of the Omicron variant hampered activity.

Europe's largest economy shrank by 0.7% quarter on quarter in adjusted terms, the Federal Statistics Office said. A Reuters poll had forecast the economy to shrink by 0.3%.

The preliminary data showed that private consumption had fallen significantly, the office said, while government spending increased. The construction sector also contracted.

The German economy grew by 2.8% last year, and the government has cut its economic growth forecast for 2022 to 3.6%. Economy Minister Robert Habeck said on Friday he expected a slowdown to 2.3% in 2023.

Thomas Gitzel of VP Bank Group said easing raw material shortages should help the economy remain on a growth path but that the pandemic was a risk.

"A worsening of supply chain problems linked to a rapidly spreading Omicron wave in China and a military escalation on Ukraine's eastern border are among the risks," he wrote in a note.

Western powers fear that a Russian invasion of Ukraine could worsen an energy crunch in Europe should the Kremlin respond to sanctions by cutting gas supplies to Europe.

SOURCE: Reuters
Image Source: BBC