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Germany is often referred to as the European Union's economic
engine, but restrictions introduced in the autumn to fight a
fourth COVID-19 wave as well as supply chain disruptions
translated into a contraction of 0.7% in the fourth quarter.
The French economy, which saw an economic revival toward midyear
as restrictions were largely lifted, kept growing in the same
period, posting a 0.7% rise. This translated into a full-year
expansion of 7%, the strongest since 1969.
The German economy expanded by 2.8% last year, exposing its
vulnerability to supply chain bottlenecks hampering the
manufacturing sector that forms its export-oriented backbone.
"The German economy went into hibernation at the turn of the
year," Carsten Brzeski of ING wrote in a note.
"New restrictions to tackle the fourth wave of the pandemic and
the Omicron wave as well as higher energy prices dented private
consumption. With this weak fourth quarter, the likelihood of
Germany being in an outright recession at the turn of the year
has increased."
The preliminary data published by Germany's Statistics Office
showed that private consumption fell significantly while
government spending increased. The construction sector also
contracted.
The government this month 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.
Despite the French recovery, weak growth in Germany, Europe's
largest economy, bodes ill for the euro zone.
Data published on Friday showed economic sentiment in the bloc
deteriorated in January, pulled down mainly by a more downbeat
sentiment in the industrial sector.
The German economy also faces headwinds from high energy prices,
which have dampened private consumption.
An easing of raw material shortages should help the economy
remain on a growth path but the pandemic and a possible military
conflict between Russia and Ukraine are major risks, Thomas
Gitzel of VP Bank Group said.
"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. Russia has denied it plans to
invade.
(Writing by Joseph NasrEditing by Paul Carrel, Maria Sheahan and
Frances Kerry)
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