German Economy Enters Recession After GDP Declines For Two Consecutive Quarters

The German economy has contracted by 0.3 per cent in the first quarter of 2023, showed to the latest data released by the country’s statistical office on Thursday. This is the second consecutive GDP decline for Europe’s largest economy, sending the country into a recession.

Two consecutive quarters of decline in a country’s real (inflation-adjusted) gross domestic product (GDP) is commonly defined as a ‘technical recession’ by most commentators and analysts. 

Germany’s Federal Statistical Office (Destatis) report said, “The gross domestic product (GDP) fell by 0.3 per cent in the first quarter of 2023 on the fourth quarter of 2022 after adjustment for price, seasonal and calendar variations.”

This follows a 0.5 per cent contraction in the last three months of 2022. During the period the country battled an energy crisis unleashed by Russia’s invasion of Ukraine.

“After GDP growth entered negative territory at the end of 2022, the German economy has now recorded two consecutive negative quarters,” said Ruth Brand, President of the Federal Statistical Office.

The first estimate had showed GDP stagnating in the first quarter. The negative growth figure for this quarter was revised down by the federal statistics agency from an initial estimate of zero per cent. Year-on-year, the country’s GDP fell by 0.5 per cent when adjusted for price and calendar effects.

Household consumption declined 1.2 per cent quarter-on-quarter after price, seasonal and calendar adjustments. Government spending also decreased significantly by 4.9 per cent in the quarter, the data showed. 

After a sluggish second half of 2022, investment saw an increase in the first three months of the year. Machinery and equipment investment rose by 3.2 per cent compared to the previous quarter, and construction investment saw a 3.9 per cent increase. Trade also made positive contributions, with exports rising by 0.4 per cent and imports falling by 0.9 per cent.

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Germany also experienced a recession in early 2020 when the coronavirus pandemic spread across Europe, leading governments to implement widespread economic shutdowns.

“Under the weight of immense inflation, the German consumer has fallen to his knees, dragging the entire economy down with him,” Andreas Scheuerle, an analyst at DekaBank, told Reuters. 

“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,” ING’s global head of macro Carsten Brzeski said, the news agency reported. 

According to the report, several factors, including reduced purchasing power, declining industrial orders, and the anticipated slowdown of the US economy, point towards a period of weak economic activity. Key leading indicators in the manufacturing sector are also showing a downward trend.

Despite this, the German Bundesbank predicts modest economic growth in the second quarter, primarily driven by a recovery in the industry sector, offsetting stagnant household consumption and a decline in construction, the report added. 

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