Germany sees brighter outlook for Europe's largest economy

German Chancellor Olaf Scholz, right, and German Economy and Climate Minister Robert Habeck, center, take their seats during weekly cabinet meeting of the German government at the chancellery in Berlin, Germany, Wednesday, Jan. 25, 2023. (AP Photo/Markus Schreiber) (Markus Schreiber, Copyright 2023 The Associated Press. All rights reserved)

FRANKFURT – The German government on Wednesday said it expects to eke out economic growth this year instead of a decline as Europe's largest economy manages its energy divorce from Russia and shells out support for consumers and businesses hit by higher energy costs.

The 2023 outlook improved to an 0.2% expansion from a 0.4% contraction that was expected in October, when Germany feared it would run out of natural gas used to power factories, generate electricity and heat homes this winter. Warmer-than-usual weather helped, as did a scramble to line up additional supplies of liquefied natural gas, or LNG, that comes by ship instead of pipeline from Russia.

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Russia's state-owned exporter Gazprom has halted all but a trickle of natural gas to Europe as countries support Ukraine during the war. Germany, one of the countries most dependent on Russian natural gas to power its industry, had no reception terminals for LNG at the start of the year. It now has three floating terminals on its northern coast, at a cost of billions of euros.

“We have made the crisis manageable,” Vice Chancellor and Economy Minister Robert Habeck said at a news conference.

He said that while 0.2% growth “is not where we want to get to,” the measures taken to shield people from the energy crisis had prevented a steeper downturn. The improved outlook “didn't fall from heaven — we accomplished it, this country accomplished it.”

Habeck said growth would turn out close to zero for the last months of 2022 and the first part of this year and could be slightly negative.

“It is still likely that we will have a technical recession," defined as two consecutive quarters of falling output, but the downturn would be “shorter and milder” than earlier expected, he said.

Germany has introduced price caps on electricity and natural gas as part of 200 billion euros in added government spending, enabling people to buy 80% of their heat or electricity at fixed prices.

With prospects for Europe's largest economy looking less gloomy, more economists are now saying the 20 countries that use the euro currency may avoid a shallow technical recession.

But high inflation is a significant drag on growth as higher prices for food and utilities erode consumer spending power.

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