Germany on brink of recession as economy shrinks; central banks may raise interest rates to 15-year highs this week – as it happened

Closing summary

Time to wrap up… here are today’s main stories

Germany is facing a winter recession after its economy shrank in the last quarter.

New official data showed German GDP fell by 0.2% in the October-December period, worse than expected, as the energy crisis and higher interest rates hit growth.

Analysts warned that Germany’s economic outlook is not too rosy, with ING’s Carsten Brzeski saying:

Not falling off the cliff is one thing, staging a strong rebound, however, is a different matter. And there are very few signs pointing to a healthy recovery of the German economy any time soon.

First of all, we shouldn’t forget that fiscal stimulus over the last three years stabilised but did not really boost the economy. Industrial production is still some 5% below what it was before Covid, and GDP only returned to its pre-pandemic level in the third quarter of 2022.

Industrial orders have also weakened since the start of 2022, consumer confidence, despite some recent improvements, is still close to historic lows, and the loss of purchasing power will continue in 2023.

Sweden’s economy also contracted in Q4, by 0.6%, while Belgium managed modest growth of 0.1%. We find out tomorrow how FrancePortugalItaly and the wider eurozone fared…..

Investors are bracing for interest rates in major economies to hit their highest levels in around 15 years this week.

The Bank of England and the European Central Bank are both expected to raise their key interest rates by half-a-percent, while the US Federal Reserve may restrict itself to a quarter-point hike on Wednesday.