The German economy unexpectedly grew in the third quarter, official data showed on Friday, defying predictions of a contraction as Europe's powerhouse grapples with high inflation and an energy crisis.

German output increased by 0.3 per cent quarter on quarter, federal statistics agency Destatis said in preliminary figures, adding that the expansion was mainly powered by consumer spending.

Analyst surveyed by Factset had expected a contraction of -0.2 per cent.

"The German economy managed to hold its ground despite difficult framework conditions of the global economy with the continuing COVID-19 pandemic, supply chain interruptions, rising prices and the war in Ukraine," Destatis said.

The overall outlook for Europe's largest economy remains gloomy however, as the fallout from Russia's war in Ukraine takes its toll.

"Today's positive growth data is a welcome surprise. However, it does not mean that the German economy will be able to prevent a recession," said ING economist Carsten Brzeski. "The recession is only delayed, not cancelled."

The recession is only delayed, not cancelled- ING economist Carsten Brzeski

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 per cent 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 per cent in 2023.