According to data released by the German statistics office Destatis on Friday, the country’s gross domestic product (GDP) stagnated in the fourth quarter of 2022, growing by 1.9% over the year. However, this growth rate was slower than the 2.6% expansion seen in 2021, as the economy faced several challenges in 2022, including a severe energy crisis resulting from the war in Ukraine, high inflation, increasing borrowing costs, supply constraints, and a shortage of skilled workers.

The figures indicate that Germany may postpone a recession for now; however, it is still unlikely to avoid it. The annual GDP for 2022 exceeded forecasts of 1.8% growth and is 0.7% higher than in 2019, prior to the outbreak of the COVID-19 pandemic.

Despite the challenges, private consumption was the primary driver of growth, increasing by 4.6%, while fixed investment and public spending saw smaller increases of 0.2% and 1.1%, respectively. Additionally, net external demand negatively impacted the GDP, as imports rose more than exports. In terms of industries, the service sector led the expansion, while the manufacturing sector stagnated, and the construction sector contracted for a second consecutive year.

Europe’s biggest economy releases a preliminary full-year GDP figure before full December economic data is available, and an official fourth-quarter number isn’t due for a few weeks.

Inflation eased for a second month in a row in December due to falling energy prices and a one-off government off payment of household energy bills, with EU-harmonized consumer prices rising 9.6% year-on-year. There is good probability that inflation had peaked as global energy prices have been falling over the past nine months.

But substantial government interventions and a mild European winter have cushioned the blow and allayed fears of a major downturn. Thanks to the improved supply of energy, the outlook in December is much better than it was in October.

Wholesale price inflation in Germany rose to 12.8% year-on-year in December 2022, the softest rise since August 2021, following a 14.9% gain in November. Wholesale price growth peaked in April, with a 23.8% year-on-year increase.

The main focus this week is likely to be on the German CPI data for December and ZEW survey of economic sentiment for January, both released on Tuesday. Annual CPI data is expected to remain unchanged from the prior month reading of 8.6%, while the ZEW economic sentiment is expected to show an improvement to -15.5 from -23.3 in December.