World’s fourth-largest economy and Europe’s largest, Germany, has entered into recession after the country’s GDP recorded its second quarterly contraction.
The country’s Gross Domestic Product (GDP) from January to March quarter fell by 0.3 per cent, data released by the Federal Statistical Office on Thursday showed. This was the second consecutive drop from the last quarter of 2022, which showed a GDP fall of 0.5 per cent. Two consecutive quarters of decline constitute a technical recession.
The figures come as a major blow to the German government after it last month estimated double growth for this year.
German GDP data showed “surprisingly negative signals,” Finance Minister Christian Lindner said on Thursday. He added that comparing Germany with other highly developed economies, the economy was losing potential for growth.
“I don’t want Germany to play in a league in which we have to relegate ourselves to the last positions,” he said, referring to the forecasts of the International Monetary Fund, which predicted a recession in 2023 only in Germany and Britain among European countries.
Experts say that high inflation contributed to the recession, with prices in April spiking by 7.2 per cent than a year ago.
Germany’s inflation rate is above Europe’s average but below the UK’s 8.7 per cent.
Data from the statistics office showed that German households decreased their spending in the first quarter, with final consumption expenditure falling 1.2 per cent over that period. Industrial orders were also weaker, reflecting the impact of higher energy prices on businesses. Government spending also witnessed a drop in the first three months of the year.
“The persistence of high price increases continued to be a burden on the German economy at the start of the year,” the federal statistics agency Destatis said in a statement.
The latest economic development comes in the wake of high inflation and high-interest rates across the region. The European Central Bank (ECB) is expected to raise rates again at its next meeting on June 15. The central bank has lifted its rates by 375 basis points since July.
Earlier this week, German Central Bank Governor Joachim Nagel said that the ECB has “several” more rate increases ahead.
Germany, which is heavily reliant on Russian energy, struggled to look for alternative sources as the West-led sanctions following the Russian invasion of Ukraine in February 2022 continued to put a toll on its economy.
A mild winter in Germany meant that the worst scenarios — such as a gas shortage, which would have ravaged the economy — did not occur.
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.
(With inputs from agencies)
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