German Economy Stagnates Amid Difficult Global Conditions

Germany's economy stagnated in the second quarter of this year as the gross domestic product (GDP) was unchanged at 0.0 percent compared to the previous quarter, the Federal Statistical Office (Destatis) said on Friday.

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The difficult global economic conditions, with the ongoing COVID-19 pandemic, disrupted supply chains, rising prices and the Russia-Ukraine conflict, were clearly reflected in the short-term economic development.  In Q1 2022, Europe's biggest economy had still grown by 0.8 percent, higher than assumed in recent forecasts.

"The outlook, however, is gloomy," Oliver Holtemoeller, vice president of the Halle Institute for Economic Research (IWH), said, adding that price-adjusted GDP was "likely to decline in H2 2022 due to the loss of purchasing power caused by high energy prices."

Germany's economy was "supported mainly by household and government final consumption expenditure, whereas the balance of exports and imports had a downward effect on economic growth," Destatis mentioned.

Rising energy and food prices were putting a high burden on private households in Germany and "increasingly affecting the propensity to buy," according to the latest monthly consumer climate study by market research institute GfK.

Energy prices in July were up by 35.7 percent year-on-year and food prices rose by 14.8 percent. Still close to record levels, inflation in Germany slowed down slightly to 7.5 percent in July, according to provisional figures.

"The sharp rise in prices for energy and non-energy raw materials is fueling inflation -- this is being felt by citizens and companies alike," warned Wolfgang Niedermark, member of the executive board of the Federation of German Industries (BDI) on Friday.

Sentiment in the German economy also "cooled significantly" as the corresponding business climate index fell to its lowest value since June 2020. "Companies are expecting business to become much more difficult in the coming months," the ifo Institute said earlier this week.