GDP fell by 0.3 percent
German economy slides into recession
05/25/2023, 08:09 am
The worst is actually over: the German economy has so far been coping much better with the consequences of the Ukraine war than initially assumed. Nevertheless, German economic output fell by 0.3 percent in the first quarter. One of the reasons for this is private consumption.
The German economy slipped into a recession due to falling consumer spending by inflation-plagued consumers. The gross domestic product (GDP) shrank from January to March by 0.3 percent compared to the previous quarter and thus for the second quarter in a row, as the Federal Statistical Office announced on Thursday. It thus revised its original estimate from the end of April, which had still shown stagnation. If there are two negative quarters in a row, there is talk of a technical recession.
“After GDP had already slipped into the red at the end of 2022, the German economy recorded two negative quarters in a row,” said Ruth Brand, President of the Authority. If economic output shrinks for two quarters in a row, economists speak of a technical recession. This does not mean that the full year is negative. Mainly thanks to the mild winter, the worst scenarios did not materialize – such as a lack of gas that would have left deep scars.
In the fourth quarter of 2022, economic output fell by 0.5 percent. The economy was slowed down by shrinking private consumption. This fell by 1.2 percent in the first quarter. According to the information, private households spent less on food and beverages, clothing, shoes and furnishings than in the previous quarter. High inflation is a challenge for consumers: it is eroding their purchasing power. Government consumption also fell, by 4.9 percent. On the other hand, positive impetus came from investments, which grew by 3.9 percent.
Foreign trade also supported the economy. A strong upswing is not in sight for the time being. The Bundesbank expects at least slight growth in the spring. “In the second quarter of 2023, economic output should increase again slightly,” says the current monthly report. Easing delivery bottlenecks, high order backlog and lower energy prices should ensure a recovery in industry. “This should also support exports, especially since the global economy has regained some momentum,” the Bundesbank expects. The federal government expects GDP growth of 0.4 percent this year. In 2024, there should then be a stronger increase of 1.6 percent. For comparison: last year there was growth of 1.8 percent.