BERLIN, May 25 (Portal) – The German economy found itself in recession in early 2023 after fiscal spending in Europe’s economic engine finally succumbed to the pressures of high inflation.
Adjusted for price and calendar effects, gross domestic product fell by 0.3 percent in the first quarter of the year, according to a second estimate by the statistical office on Thursday. This follows a 0.5% decline in the fourth quarter of 2022. A recession is commonly defined as two consecutive quarters of decline.
German GDP data showed “surprisingly negative signals,” Finance Minister Christian Lindner said on Thursday. He added that the economy is losing growth potential compared to other advanced economies.
“I don’t want Germany to play in a league where we have to relegate to the last places,” he said, referring to projections by the International Monetary Fund, which predicted a recession in 2023 only for Germany and the UK European countries.
Robert Habeck, Germany’s economy minister, said his country’s previous heavy reliance on Russia for energy had led to the recession, but growth prospects were much bleaker.
“We are fighting our way out of this crisis,” said Habeck on Thursday at an event in Berlin.
“Under the weight of immense inflation, German consumers have fallen to their knees and have dragged the entire economy with them,” said Andreas Scheuerle, an analyst at DekaBank.
Price-adjusted, seasonally and calendar-adjusted consumption by private households fell by 1.2% compared to the previous quarter. Government spending also fell significantly by 4.9% quarter-on-quarter.
People walk past the Europa-Center shopping mall amid the coronavirus (COVID-19) pandemic in Berlin, Germany, December 14, 2020. Portal/Michele Tantussi
“Warm winter weather, a rebound in industrial activity supported by China’s reopening and an easing of supply chain tensions were not enough to lift the economy out of the recessionary danger zone,” said Carsten Brzeski, Global Head of Macro at ING .
In contrast, investments increased in the first three months of the year after a weak second half of 2022. Investments in machinery and equipment increased by 3.2% qoq, while construction investments increased by 3.9% qoq.
Positive contributions also came from retail. Exports rose 0.4% while imports fell 0.9%.
“The massive rise in energy prices took its toll in the winter months,” said Commerzbank chief economist Jörg Kraemer.
A recession was unavoidable and the question now is whether there will be a recovery in the second half of the year.
“Looking beyond the first quarter, the optimism at the beginning of the year seems to have given way to a sense of reality,” said Brzeski.
A decline in purchasing power, thinning industrial order books, aggressive monetary tightening and the expected weakening of the US economy all point to weak economic activity.
After the decline in the Ifo business climate on Wednesday, all important leading indicators in the manufacturing sector are now declining, said Kraemer.
But Deutsche Bundesbank expects the economy to grow modestly in the second quarter as a rebound in manufacturing more than offsets stagnant household consumption and a slump in construction, according to a monthly economic report released on Wednesday.
Reporting by Maria Martinez, additional reporting by Christian Kraemer, editing by Friederike Heine, Simon Cameron-Moore, Toby Chopra and Mark Porter
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