The European Central Bank hiked interest rates by 50 basis points during its last monetary policy meeting of 2022, marking the fourth rate increase for the year. The central bank slowed the pace of increases; however, it remains committed to contain record high inflation and warned that further interest rate increases are required due to a substantial upward revision to the inflation outlook.

Average inflation is seen reaching 8.4% in 2022 before decreasing to 6.3% in 2023. Inflation is then projected to average 3.4% in 2024 and 2.3% in 2025. GDP for the Euro Area may contract in the current and next quarter, due to the energy crisis, high uncertainty, weakening global economic activity and tighter financing conditions. Overall, the central bank now sees the economy growing by 3.4% in 2022, 0.5% in 2023, 1.9% in 2024 and 1.8% in 2025.

European Union energy ministers on Monday finally agreed on a gas price cap at €180 per megawatt hour, in the latest attempt to lower gas prices that have pushed energy bills higher and have been the main culprit for record-high inflation this year.

The Ifo Business Climate indicator for Germany rose for a third consecutive month to 88.6 in December 2022, beating market expectations of 87.4. Sentiment improved despite high inflation and the ongoing energy crisis as expectations for the coming months were significantly less pessimistic (83.2 vs 80.2 in November).

According to Destatis, the German producer price index (PPI) fell 3.9% MoM in November, sharper than expected, compared to a 4.2% fall in October. The annual producer inflation in Germany fell to 28.2% in November 2022 from 34.5% in October, below market forecasts of 30.6%. Energy prices remained the biggest upward contributor, namely the distribution of natural gas and electricity. Excluding energy, producer prices climbed 12.7% from a year earlier.

The Gfk German Consumer Climate Index in Germany which measures the level of consumer confidence in economic activity was released on Wednesday. The GfK Indicator rose to -37.8 heading into January of 2023 from a revised -40.1 in December, beating market expectations of -38.0. The current reading of the forward-looking index marks the third straight month of a small but gradual improvement in sentiment amid government energy measures.

Germany’s Ifo economic institute said in a statement on Wednesday, the outlook for Germany’s labor market is expected to be upbeat for the first quarter of 2023, driven primarily by service providers.