Domestic demand saves the economies of Germany and France in the third quarter

Germany avoided the recession predicted by its main economic institutes and finally grew by 0.3% in the third quarter of the year compared to the previous quarter, mainly supported by private consumption, according to advanced data released today by the federal statistics office, Destatis , and it is surprising because the experts' forecast was that a recession would begin to be glimpsed, which the Government hopes will clearly occur in 2023.

The rise in German GDP between July and September follows the 0.1% increase in the second quarter -when it recovered the pre-pandemic level- and after the 0.8% growth in the first quarter.

"After the slight increase in the second quarter of 2022 (0.1%), the German economy continued to remain strong despite difficult global economic conditions with the ongoing coronavirus pandemic, interrupted supply chains, rising prices and the war in Ukraine," according to Destatis.

The growth of the third quarter is supported by the push of private consumption, although Destatis specifies that "due to the current coronavirus crisis and the consequences of the war in Ukraine, these results are subject to greater uncertainty than usual."

The main German economic institutes announced at the end of September that the GDP for the third quarter of 2022 could fall by 0.2%, a decline that would increase in the last three months of the year to 0.6% followed by a fall of 0, 4% in the first of 2023-

Subsequently, the German government published its autumn economic forecasts for next year, during which Berlin clearly anticipates entering a recession, with a drop in GDP for the year as a whole of 0.4%.

Destatis confirms today that despite the recovery in the third quarter, in year-on-year data the trend is downwards: GDP rose by 3.9% in the first quarter, grew by 1.7% in the second and 1.1% In the third.

Already in the second quarter of the year - in which the economic consequences of the war in Ukraine were fully noticeable - the federal office revealed that the economy was supported mainly by private consumption spending, but also by the public, reports Efe.

Thus, private consumer spending was 0.8% higher than in the first quarter, after seasonal, calendar and price effects were eliminated, while that of the State increased by 2.3%.

Then it was detected that private consumers took advantage of the lifting in the second quarter of almost all the restrictions related to the pandemic to, for example, return to travel and go out more.

We will have to wait for the detailed analysis of the third quarter to see if during the summer months private spending remained the engine that prevented the recession.

The rise in GDP also contradicts the experts at the Bundesbank, the German central bank, who in their report this month said that they expected the German economy to stagnate in the summer quarter and pointed to gloomy prospects: "in the winter semester that has just started, downward forces are likely to increase significantly," the Bundesbank economists explained, adding that it is "likely" that the economy is "on the verge of a recession."

The data of the unexpected increase in GDP for the third quarter is also known despite record inflationary pressures, after the September index, which reached 10%. The German government forecasts only a slight drop in inflation in 2023, at most around 7%.

The main economic institutes in the country agree with the government forecast and expect that there will be a drastic increase in energy prices, increases in production costs that will also lead to increases in other products and to levels of inflation that have not been seen since the decade of 70's.

Those institutes had forecast a few months ago that the German economy would initially grow by 3.1% in 2022 and the Government also expected that the GDP would increase by 2.5% in 2023, forecasts substantially altered as a result of the impact of the war in Ukraine.

For its part, the French economy grew by 0.2% compared to 0.5% in the second quarter, according to data published today by the National Statistics Office (Insee), supported by the 0.5% rise in the services and the increase in domestic demand (0.4%).

The 0.2% increase was forecast by Insee, which calculates that the national economy will stagnate in the fourth quarter of the year. In the first quarter of the year, French GDP had contracted by 0.2%.

In contrast, household consumption remained unchanged after rising 0.3% in the second quarter, a sign that citizens control their spending in the face of economic uncertainty.

In addition, the foreign sector fell by 0.5%, mainly due to the decline in service exports, details the Insee in its statement.