German GDP fell for two consecutive quarters. High inflation, mainly driven by energy prices, is holding back consumer spending. The German economy contracted by 0.3% in the first quarter of 2023 compared to the previous three months, according to data released by the Federal Office of statistics (Destatis) Thursday-Friday (25 /05).
After a contraction of 0.5% in the last three months of 2022, this was the second consecutive quarter of decline in German gross domestic product (GDP), which characterizes a “technical recession”.
The decline comes as Germany grapples with rising energy prices following the Russian invasion of Ukraine, which has weighed on budgets for homes and businesses.
In April, a preliminary estimate by Destatis found that German GDP had stalled at zero growth in the first quarter, indicating that Germany had narrowly escaped a recession.
Rising energy drives inflation
“Some statistical revisions were needed, but in the end, the German economy has indeed performed this winter in the way we feared it did last summer,” bank ING economist Carsten Brzeski said in a note to clients. “A mild winter, a recovery in industrial activity, aided by China’s reopening, and a decrease in supply chain friction were not enough to move the economy out of the recession danger zone.”
The increase in the cost of energy pushed up inflation, which in April in Germany stood at 7.2%, just below the peak at the end of 2022.
“The persistence of sharp price increases continued to weigh on the German economy at the start of the year,” Destatis said in a statement.
The impact has been felt most by consumers, who have curbed spending on goods such as food and clothing, beverages, footwear and furniture. They also bought fewer new cars, likely due to the end of 2022 government subsidies.
Weak economic indicators
“The negative revision of the index is not surprising after a series of weak economic indicators,” said Jens-Oliver Niklasch, an analyst at LBBW bank. “Early indicators suggest that things will remain similarly sluggish in the second quarter of 2023,” Niklasch added.
Industrial orders, which lead industrial production, plummeted in March compared to the same month last year.
Germany, which relied heavily on energy imports from Russia, was particularly exposed after the invasion of Ukraine in February last year. Reduced gas supplies, in particular, are forcing Berlin to seek out new energy sources and fill reserves ahead of what is predicted to be a harsh winter in late 2022.
But the winter has turned out to be mild in Germany, barring worst-case scenarios such as a gas shortage that would have devastated the economy.
md/lf (AFP, Reuters, DPA)
Source: Terra
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