German Economy Contracts: Q4 GDP Shrinks by 0.3%

According to Destatis,

  • Household final consumption expenditure increased by 0.2% quarter-on-quarter.
  • The German services sector contributed positively, with government final consumption expenditure rising.
  • However, fixed capital formation in construction (-1.7%) and gross capital formation in machinery and equipment (-3.5%) impacted the economy.
  • Trade terms also contributed negatively. In Q4, exports of goods and services declined by 1.6% quarter-on-quarter.
  • Despite the gloomy report, the production of motor vehicles, trailers, and semi-trailers increased, bucking the broader trend across the manufacturing sectors.

Year-on-year, the German economy contracted by 0.2% in Q4 after contracting by 0.3% in the previous quarter.

Implications to ECB Monetary Policy

The German economy remains a focal point for the ECB. However, recent private sector PMI numbers likely eased immediate fear of the German economy dragging the Eurozone economy into a recession. Nonetheless, the threat of a technical German recession could pressure the ECB to begin discussing interest rate cuts.

EUR/USD Reaction to German Economic Data

Before the German GDP numbers, the EUR/USD fell to a low of $1.08148 before rising to a high of $1.08319.

However, in response to the GDP numbers, the EUR/USD fell to a low of $1.08238 before climbing to $1.08270.

On Friday, the EUR/USD was up 0.02% to $1.08253.

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