German economy grew more than estimated in third quarter

Germany's economy grew more than previously thought in the third quarter despite high inflation and an energy crisis, revised official data showed Friday.

Published: 25 November 2022 09:44 CET

Shoppers stroll through Lübeck Christmas market. Photo: picture alliance/dpa | Markus Scholz

Europe’s biggest economy expanded by 0.4 percent between July and September compared to the second quarter — slightly better than the 0.3 percent growth previously calculated by federal statistics agency Destatis.

Analysts had forecast a contraction in the third quarter as the fallout from Russia’s war in Ukraine takes a toll on European economies.

“Overall, the German economy remains robust,” Destatis said in a statement. Gross domestic product grew “despite difficult general conditions in the global economy such as the continuing Covid-19 pandemic, delivery bottlenecks, continuing price rises and the war in Ukraine,” it said.

A separate survey on Friday showed that German consumer confidence has edged up again following a long period of decline, the latest indication that concerns are easing about the severity of a approaching downturn.

Pollster GfK’s forward-looking barometer registered minus 40.2 points for December, an increase of 1.7 points from November.

Germany was heavily reliant on Russian gas before the war, and Moscow’s move to cut off flows through the crucial Nord Stream 1 pipeline has fuelled fears of energy shortages and skyrocketing heating bills this winter.

Record-high inflation of 10 percent in September has added to the pain, as consumers and businesses see their purchasing power eroded.

The German government expects the economy to shrink by 0.4 percent in 2023.

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“The number of employees in Germany is to be successively reduced by 11,000 to 14,000 from the current level of around 54,000 by 2028,” ZF said in a statement.

The decision to significantly reduce the size of its domestic workforce was needed to “respond to the changes in the mobility sector, particularly in the field of electromobility”, ZF said.

The move was “difficult but necessary”, ZF chief executive Holger Klein said in a statement.

“The seriousness of the situation calls for decisive action to be able to adapt the company to the tougher market and competitive environment,” Klein said.

Restructuring the auto supplier in Germany was needed to “strengthen our competitiveness and consolidate our position as one of the world’s leading suppliers”, Klein said.

Strong competition, cost pressures and weak demand for electric vehicles meant the restructuring would focus on ZF’s electric motors division, the group said.

The emerging market, in which Chinese manufacturers have taken the lead, was “highly competitive”, ZF said.

Building the motors for electric cars had “low margins” and the group was struggling to “cross-finance purely electric drives” from its efforts in conventional and hybrid vehicles, ZF said.

The switch to electric vehicles was eating away at demand for “transmissions for conventional and hybrid vehicles”, an area where German suppliers have traditionally excelled, it said.

At the same time, “the current glaring weakness in demand for purely electric vehicles” meant ZF had been left with overcapacity in areas backed with high investments.

Despite the difficulties, “the future belongs to electromobility”, CEO Klein said.

ZF would continue to “invest heavily in this area”, he promised, but would have to explore cooperation with other firms in the area to remain competitive.

‘Leaner’

As part of the restructuring, the Friedrichhafen-based supplier said it would “increase its investments” in the areas of in-car technology, vehicle chassis, industrial tech and aftermarket services.

ZF’s network in Germany would be made “leaner” after recent acquisitions had seen it gradually expand, the group said.

The ultimate extent of the job cuts would depend on “the further development of the markets”, ZF said.

EU plans to outlaw the sale of new fossil fuel-powered cars from 2035, means some jobs in the industry will inevitably become redundant.

Meanwhile, Chinese manufacturers have grabbed the advantage in electric vehicles and are hauling in a growing share of the market.

The Chinese battery-maker CATL has grown in short order to become the world’s third largest auto supplier.

The double shock delivered by the end of combustion engines and rising Chinese competition has piled pressure on European suppliers.

Besides ZF, parts makers like Bosch, Continental and Webasto have been among the companies in the sector to have announced job cuts.