Germany’s economic output shrank 0.2 percent in 2022’s final quarter, year over year, the national statistics office announced.

Analysts and officials had widely predicted little if any growth but few had forecast a downturn.

Officials had voiced optimism about the country’s performance last week when producer prices’ rate of inflation slowed, if only to 21.8 percent. Consumer confidence polled at its highest level since June.

Also, Germany’s gas storage reserves were full, bringing energy prices down in a mild winter and boding well for lower prices continuing in coming months.

Now those voices are muted: a contraction in the current quarter would drop Germany into a recession, which the country has been skirting the edge of for months.

A recession is technically defined as two consecutive quarters of economic contraction.

“We expect more of the same for early 2023, namely a modest decline in real GDP reflecting mostly lower consumption,” Berenberg economist Salomon Fiedler told Bloomberg.

“Following the mild winter recession, the economy is likely to stabilize in spring and start to expand significantly again in mid-2023,” he said.

Elsewhere in Europe, Belgium’s economy ticked up 0.1 percent last quarter and Latvia’s grew 0.3 percent.

However, German manufacturing has long been the engine of the European economy and is currently seeing demand for its products shrink under persistent inflation and rising interest rates.

The German government had forecast a 0.4-percent economic contraction this year but now predicts 0.2-percent expansion. 

Still, officials are warning that recession is possible, especially as Russia’s war in Ukraine continues. Also, postal workers are striking for a 15-percent pay bump; government workers want a double-digit raise as well.

TREND FORECAST: Europe has been hit hard by the sanctions its politicians imposed on Russia which have driven up numerous commodity prices, especially energy. And while energy prices have fallen from their highs, we forecast they will rebound as the war heats up in Ukraine and in the Middle East… as we have detailed in this and previous Trends Journals. 

Also, with Europe sending more money and military aid to Ukraine, less resources are being spent to prop up economies.

And with the European Central Bank widely expected to boost its key interest rates by another half point this week, it will raise costs even more across the continent and squeeze the region’s economy tighter still.