Germany has slipped into recession as last year’s energy price shock takes its toll on consumer spending. Output in Europe’s biggest economy fell 0.3 percent in the first three months of the year, following a 0.5 percent contraction at the end of 2022, according to official data released Thursday.
Germany is facing recession
The Federal Statistics Office revised down its previous estimate of zero growth in gross domestic product (GDP) from the previous quarter. A recession is defined as two consecutive quarters of declining output.
“The persistence of high price increases continued to be a burden on the German economy at the beginning of the year,” the bureau said.
“This was particularly reflected in household final consumption expenditure, which fell by 1.2% in the first quarter of 2023.”
Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said consumer spending in the first quarter was held back by the “energy price shock”.
European energy prices were already on the rise when Russia’s invasion of Ukraine last February sent them soaring to record levels. Moscow then moved to block gas supplies to European countries, prompting Germany to declare a state of emergency, CNN writes.
Uncertain prospects
Natural gas prices have since fallen and are now at levels last seen in late 2021, indicating an easing of inflationary pressures on consumers’ pocketbooks. Germany’s annual inflation rate slowed again in April – the first month of the second quarter – although at 7.2% it remained high.
“We believe consumer spending is now recovering as inflation moderates,” Vistesen said in a note.
“We doubt that GDP will continue to decline in the coming quarters, but we don’t see a strong recovery either.”
In a sign that Germany’s recession may prove short-lived, more timely survey data showed earlier this week that business activity in the country rose again in May, despite a sharp decline in manufacturing.
