German economy plunged into recession as inflation hit consumers

BERLIN, May 25, 2020 (Reuters) – The German economy plunged into recession in early 2023 as household spending, the engine of Europe’s economy, finally gave in to the pressures of high inflation.

Gross domestic product (GDP) fell by 0.3% in the first quarter of this year, adjusted for price and calendar effects, according to second estimates released by the Bureau of Statistics on Thursday. This follows his 0.5% decline in Q4 2022. A recession, he generally defined as two consecutive quarters of recession.

Finance Minister Christian Lindner said Thursday that Germany’s gross domestic product (GDP) data showed a “surprisingly negative signal”. He added that Germany’s economy is losing its growth potential when compared to other highly developed countries.

“We don’t want Germany to play in a league where it’s pushed to the bottom,” he said, referring to the International Monetary Fund’s forecast of a recession in 2023. European countries.

Germany’s Economy Minister Robert Habeck said the country’s past heavy reliance on Russia for its energy supply has led to a recession, but growth prospects are much more bleak.

“We are fighting to get through this crisis,” Häbeck said at an event in Berlin on Thursday.

“German consumers are on their knees under the weight of massive inflation, pushing down the economy as a whole,” said Andreas Scheure, an analyst at Dekabank.

Household consumption decreased by 1.2% q/q after adjusting for prices, seasons and calendars. Government spending also fell sharply, down 4.9% from the same quarter.

People walk past the Europa Center shopping mall during the coronavirus disease (COVID-19) pandemic in Berlin, Germany, on December 14, 2020.Reuters/Michele Tantussi

“Warm winter weather, a rebound in industrial activity as China’s economy reopens, and easing supply chain friction are likely to be enough to lift the economy out of the recession zone,” said Carsten Brezeski, global head of macro at ING. it wasn’t,” he said.

Investments, by contrast, increased in the first three months of the year following a slowdown in the second half of 2022. Investment in machinery and equipment increased by 3.2% quarter-on-quarter, and construction investment increased by 3.9% quarter-on-quarter.

There was also a positive contribution from trade. Exports increased by 0.4%, while imports fell by 0.9%.

“The massive rise in energy prices hit the winter half-year hard,” said Jörg Kraemer, chief economist at Commerzbank.

A recession is inevitable, and the question is whether the economy will recover in the second half of this year.

“Looking beyond the first quarter, the optimism at the beginning of the year seems to have turned to reality,” Brzezeski said.

Weakening purchasing power, a diluted industrial order backlog, aggressive monetary policy tightening, and an expected slowdown in the US economy are all contributing to the slowdown in economic activity.

Following Wednesday’s drop, IFO business environmentAll key leading indicators for the manufacturing sector are now down, Kraemer said.

of Deutsche BundesbankHowever, the economy is expected to grow modestly in the second quarter as an industry recovery more than offsets slowing household consumption and a slump in construction, according to the monthly economic report released Wednesday.

Reporting by Maria Martinez, Additional Reporting by Christian Kramer, Editing by Friederike Heine, Simon Cameron Moore, Toby Chopra, Mark Porter

Our criteria: Thomson Reuters Trust Principles.

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