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German economy grows more than initially estimated in Q3

Christian Fernsby |
Overall, the German economy remains robust.

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The gross domestic product (GDP) rose by 0.4% in the third quarter of 2022 on the second quarter of 2022, adjusted for price, seasonal and calendar variations.

The Federal Statistical Office (Destatis) reports that growth was by 0.1 percentage points higher than communicated in the first release of 28 October 2022.

The GDP increased, as had been the case in the first two quarters (+0.8% and +0.1%, respectively), despite difficult general conditions in the global economy such as the continuing Covid-19 pandemic, delivery bottlenecks, continuing price rises and the war in Ukraine.

The economic performance in the third quarter of 2022 was mainly based on household final consumption expenditure. Despite continuing sharp price increases and the expanding energy crisis, consumers took the opportunity to travel and go out more, for example, also in the third quarter of 2022 after nearly all Covid-19 restrictions had been lifted.

Household final consumption expenditure rose by a total 1.0% compared with the second quarter (price, seasonally and calendar adjusted). Government final consumption expenditure remained roughly at previous quarter's level (0.0%).

Gross fixed capital formation in construction were down 1.4% (price, seasonally and calendar adjusted), as had been the case in the second quarter, whereas gross fixed capital formation in machinery and equipment rose considerably (+2.7%).

As a whole, trade with foreign countries went up, despite the difficult international situation. Thanks to the continuing high stock of orders and improved supply chains worldwide, exports of goods and services were up 2.0% in the third quarter of 2022 compared with the second quarter of 2022, after price, seasonal and calendar adjustment.

The increase in imports (+2.4%) was even higher than that of exports.

In the third quarter of 2022, the price, seasonally and calendar adjusted gross value added grew by 1.4%. One of the reasons was the surprisingly positive development in manufacturing. This positive development was achieved despite falling output in energy-intensive branches such as manufacture of chemicals and chemical products and manufacture of basic metals, which were particularly affected by the sharp rise in energy prices.

As, at the same time, output increased especially in the automotive industry and in manufacture of machinery and equipment, the economic performance in total manufacturing rose 0.9% on the previous quarter. In most service branches, too, the economic performance was up on the previous quarter.

Growth of gross value added was particularly large in trade, transport, accommodation and food services (+3.3%), public services, education, health (+4.5%) and other service activities (+5.4%). Gross value added in construction dropped markedly again by 4.2% in the third quarter of 2022 compared with a quarter earlier, after price, seasonal and calendar adjustment.

GDP in the third quarter of 2022 was up a price adjusted 1.2% and a price and calendar adjusted 1.3% from the third quarter of 2021. Compared with the fourth quarter of 2019, the quarter before the Covid-19 crisis began, the price, seasonally and calendar adjusted GDP for the first time exceeded the pre-pandemic level in the third quarter of 2022 (+0.3%).

Domestic demand continued to increase also year on year despite large price increases and global insecurity. This applies especially to household final consumption expenditure, which rose by a price adjusted 2.0% from the third quarter of 2021.

One reason appears to have been that people were keen to travel. Expenditure on accommodation, restaurant and transport services increased strongly in the third quarter of 2022. However, people spent less again on durable consumer goods than a year earlier. This was probably due to the general uncertainty caused by the sharp price rises.

The high food prices and higher demand for food and beverage services probably led to lower price adjusted household expenditure on food compared with the third quarter of 2021. Government final consumption expenditure recorded a 1.4% increase year on year.

Reasons are the continuing high central government expenditure on the centralised procurement of vaccines and higher expenditure on refugees. The increase was diminished by various Covid-19 restrictions being abolished. This includes the discontinuation of payments for hospital beds kept free and the decreasing number of Covid-19 vaccinations and rapid tests performed.

Trends diverged for fixed capital formation. Gross fixed capital formation in machinery and equipment rose considerably by 6.3% on a year earlier (price adjusted). The stock of orders appears to be very good again despite high prices and delivery bottlenecks and the number of commercial new registrations of passenger cars increased considerably.

Gross fixed capital formation in construction, in contrast, saw a 2.6% decline on the third quarter of 2021 because of high construction prices, skilled labour shortage and delivery bottlenecks especially in building completion work.

Foreign trade increased on a year earlier although the sharp price rises continued in the first three quarters of 2022.

Compared with the same period of the previous year, export prices according to the national accounting concept were up 13%. Nevertheless, exports rose a price adjusted 4.9% in the third quarter of 2022. Positive contributions came from manufacture of motor vehicles and electronic equipment, for example. Import prices were up by 20.8% on the same period a year earlier.

The marked increases in energy prices had an effect here. Nevertheless, price adjusted imports rose 8.3% on the third quarter of 2021, which is due to marked growth in tourism, for example.

Overall, the price adjusted gross value added in the third quarter of 2022 was up 1.4% on the third quarter of 2021.

Almost all economic sectors contributed to this increase. In trade, transport, accommodation and

ood . services, a considerable 2.7% increase was recorded year on year. This was mainly due to catch-up effects, caused by the easing of Covid-19 restrictions, that were reflected by rising demand for passenger transport and accommodation and food services.

Large year-on-year increases were also recorded for most other service branches such as public services, education, health (+3.0%). Growth in manufacturing was slightly below average (+1.1%).

A marked decrease was observed again in construction, where the price adjusted gross value added was down 5.4% year on year. The continuing material and skilled labour shortage contributed to this development.

The economic performance in the third quarter of 2022 was achieved by roughly 45.6 million persons in employment whose place of employment was in Germany. This was an increase of 490,000, or 1.1%, from a year earlier and another record high.

The average number of hours worked per person in employment was by 1.1% higher than in the third quarter of 2021, which was mainly due to a decrease in short-time work.

As a result, the labour volume of the overall economy, which is the total number of hours worked by all persons in employment, increased markedly by 2.2%. This is shown by first provisional calculations of the Institute for Employment Research (IAB) of the Federal Employment Agency.

Overall labour productivity (price adjusted GDP per hour worked by persons in employment) fell by 1.0% on the same quarter of the previous year, according to provisional calculations. Labour productivity per person in employment was up 0.1%.

At current prices, both the GDP and the gross national income were up 5.8% in the third quarter of 2022 compared with a year earlier.

Net national income at factor costs was up 4.0% on the third quarter of 2021. According to first provisional calculations, the increase in compensation of employees (+4.6%) was slightly larger than that of property and entrepreneurial income (+2.4%). Average gross wages and salaries in the third quarter of 2022 recorded a 3.7% increase year on year, according to first provisional calculations.

This growth is mainly due to the sharp fall in short-time work, in addition to the collectively agreed wage increases. Total gross wages and salaries rose 5.0% on a year earlier as the number of employees was up, too.

The increase of net wages and salaries (+5.2%) was slightly larger than that of gross wages and salaries, one of the reasons being the downward effect of the Tax Relief Act 2022.

The savings ratio (9.6%) was below the previous year’s value (10.4%) also in the third quarter of 2022. The main reason was the sharp rise in household final consumption expenditure at current prices which, in turn, was due especially to strong price increases.

Household final consumption expenditure at current prices rose 9.4% year on year, which was a larger increase than that of disposable income (+8.6%). Excluding the energy lump-sum payment, the increase would have been lower by roughly 2 percentage points.

Economic growth in the European Union (EU) and the euro area was slightly lower on average than in Germany in the third quarter of 2022.

Based on provisional calculations, the Statistical Office of the European Union (Eurostat) reported a GDP rise of 0.2% on the previous quarter for the EU as a whole and the euro area. In Spain and France, the GDP was up 0.2%, too. In Italy, economic growth (+0.5%) was slightly larger.

A similar growth rate was recorded for the economy of the United States (+0.6%). Some smaller EU countries neighbouring Germany recorded decreases (the Netherlands, Belgium, Austria, Czech Republic). The GDP growth rates of most other EU Member States are higher than in Germany in a year-on-year comparison.

Compared with the fourth quarter of 2019, the quarter preceding the Covid-19 pandemic, German GDP exceeded its pre-crisis level (+0.3%) for the first time in the third quarter of 2022.

In the EU as a whole (+2.7%), France (+1.1%), Italy (+1.8%) and the United States (+4.2%) the GDP has been above the relevant pre-crisis level for some time already, whereas in Spain (-2.0%) it was markedly below that level again.

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