Early in 2023, a recession hit the German economy as consumer spending in Europe’s economic engine finally buckled under the weight of soaring inflation.
According to a second estimate released by the statistics office on Thursday, the gross domestic product decreased by 0.3% in the first quarter of the year after accounting for price and calendar changes. This comes after a 0.5% fall in the fourth quarter of 2022. Two consecutive quarters of contraction is the conventional definition of a recession.
German GDP figures displayed “surprisingly negative signals,” according to Christian Lindner, Germany’s finance minister, on Thursday. In comparison to other highly developed economies, he continued, Germany’s economy was losing capacity for expansion.
I don’t want Germany to play in a league where we have to reduce ourselves to the last spots,” he said, alluding to IMF predictions that only Germany and Britain among European nations would experience a recession in 2023.
Germany’s economy minister, Robert Habeck, claimed that the recession was caused by the country’s past strong reliance on Russia for energy supply, but the growth outlook was far gloomier.
Habeck stated, “We’re fighting our way out of this crisis,” on Thursday at a gathering in Berlin.
According to Andreas Scheuerle, an analyst at DekaBank, “under the weight of immense inflation, the German consumer has fallen to his knees, dragging the entire economy down with him.”
After accounting for pricing, seasonal, and calendar changes, household consumption decreased by 1.2% from one quarter to the next. Additionally, the amount spent by the government fell sharply, by 4.9%, throughout the quarter.
“The warm winter weather, a rebound in industrial activity, helped by the Chinese reopening, and an easing of supply chain frictions were not enough to get the economy out of the recessionary danger zone,” said Carsten Brzeski, global head of macro at ING.
In contrast, after a dismal second half of 2022, investment increased in the first three months of this year. When compared to the prior quarter, investment in machinery and equipment climbed by 3.2%, and investment in construction increased by 3.9%.
Trade made helpful contributions as well. While imports decreased 0.9%, exports increased 0.4%.
Joerg Kraemer, chief economist at Commerzbank, stated that “the enormous rise in energy prices took its toll in the winter half-year.”
Unavoidable as it was, a recession has occurred, and the question now is whether or not there will be a recovery in the second half of the year.
The exuberance at the beginning of the year seems to have given way to a greater sense of reality, according to Brzeski, when looking beyond the first quarter.
Weak economic activity is supported by a decline in purchasing power, dwindling industry order books, aggressive monetary policy tightening, and the anticipated contraction of the U.S. economy.
