Germany enters economic recession

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Germany’s statistics office on Thursday released data for Europe’s largest economy, marking the country’s second contraction in as many months – a recession is commonly defined as two successive quarters of contraction.

Gross domestic product fell by 0.3% for the quarter when adjusted for price and calendar effects, the data showed, marking the country’s slide into recession. This follows a 0.5% contraction in the last three months of 2022, as Germany battled an energy crisis unleashed by Russia’s invasion of Ukraine.

The negative growth figure for this quarter was revised down by the federal statistics agency from an initial estimate of zero percent.

Dwindling energy supplies from warring Russia have pushed prices up, stoking inflation. Household consumption dropped to 1.2% quarter-on-quarter after price, seasonal and calendar adjustments.

Heavily reliant on Russian energy imports, Germany was left particularly exposed following the Russian invasion of Ukraine in February 2022. A mild winter in Germany meant that the worst scenarios — such as a gas shortage, which would have ravaged the economy — did not occur, reports DW. Germany’s last recession came as the COVID-19 pandemic at the start of 2020 prompted governments to effectively shutter whole sectors of the economy. However, this recession was less severe than some early predictions made at the start of the conflict, but mild winter weather and the easing of supply chain problems following the Covid pandemic left the country in an economic „danger zone”.

Germany’s economy shrunk slightly in the first quarter of 2023 compared with the previous three months, thereby entering a technical recession, data showed on Thursday.

Inflation continued to take its toll on the German economy during the quarter, the office said. This was reflected in household consumption, which was down 1.2% quarter-on-quarter after price and seasonal adjustments. Consumers have seen high inflation erode their purchasing power, reducing demand in the economy. Although the upward price trend has recently eased, the annual inflation rate of 7.2% recorded in April was still relatively high, says DW.

Private households spent less on food, drink, clothing, shoes and furniture than in the previous quarter. They also bought fewer new cars, possibly due to the discontinuation of government subsidies at the end of 2022. Government spending also slumped in the first three months of the year.

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