German economy goes into recession as GDP shrinks by 0.3% in Q1


BERLIN: The German economy The economy shrank in the first quarter of 2023 compared to the previous three months and thus entered a recession, data from the statistics office showed on Thursday.
A second estimate showed gross domestic product fell a price and calendar adjusted 0.3% in the quarter. This follows a 0.5% decline in the fourth quarter of 2022. A recession is generally defined as two consecutive quarters of decline.
The first estimate had shown that GDP stagnated in the first quarter and Germany avoided a recession.
In a year-to-year comparison, GDP fell by 0.5% after adjustment for prices and calendar effects.
“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.
“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 increased by 0.4% while imports fell by 0.9%.
“The massive increase in energy prices took its toll in the winter months,” said the chief economist at Commerzbank Jorg Kraemer called.
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 ING’s 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 from Commerzbank.
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.
GDP reflects the total value of goods and services produced in a country. Some experts question whether this figure alone is a useful indicator of economic prosperity since it doesn’t differentiate between types of spending.

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