HomeIndiaRecession 2023: Germany enters recession: What went wrong with Europe's largest economy?

Recession 2023: Germany enters recession: What went wrong with Europe’s largest economy?

Germany’s economy, the world’s fourth-largest, contracted marginally in the first quarter of 2023 compared to the previous three months, entering a technical recession, data showed on Thursday.

According to preliminary estimates, Germany’s gross domestic product (GDP) remained stuck at zero growth in the first quarter, narrowly avoiding a recession. However, recession fears were reignited earlier this month when statistics indicated German industrial production fell more than expected in March, hampered by a disappointing performance in the key auto industry.

why does it matter

Germany is the first large country to officially enter a recession since the Covid-19 pandemic. It is the product of unbearably high inflation and the most aggressive monetary tightening cycle in decades.

by the numbers

According to Germany’s statistics agency, the economy contracted by 0.3% in the first quarter of the year, after a contraction of 0.5% in the last three months of 2022.

The first quarter result was revised down from the initial flat reading, giving the appearance that Germany had (barely) narrowly avoided a recession.

Retrospective scene

Germany’s economy depended on a constant supply of Russian natural gas, which was cut off after the Russian invasion of Ukraine. Energy prices have skyrocketed, causing huge problems for both businesses and households.

A mild winter ensured that worst-case scenarios were avoided. However, “warm winter weather, a rebound in industrial activity, helped by China’s reopening, and easing of supply chain frictions, were not enough to move the economy out of the recession danger zone.” “, Carsten Brzeski, economist at ING. , he wrote in a note Thursday morning.

Between lines

Germany may be more exposed to the Ukraine conflict than most major economies, but it’s not a huge anomaly.

The UK economy appears to be quite poor, while the US experienced consecutive quarters of negative growth in early 2022.

what are they saying

The government stated that “the persistence of high price increases was still a burden on the German economy at the beginning of the year.”

In the last quarter, household consumption fell 1.2%, due to lower purchases of food, clothing, and new cars.

Germany’s annual inflation rate was 7.6 percent in April, down from a peak of 11.3 percent last year. However, core inflation, which excludes food and energy, has not abated, indicating increasing price pressures.

The biggest photograph

The European Central Bank has made it clear that its efforts to reduce inflation are far from over. There will almost certainly be more interest rate hikes, and they are likely to further slow the eurozone economy.

The bottom line

“(T)optimism at the beginning of the year seems to have given way to a greater sense of reality,” Brzeski said.

“A drop in purchasing power, reduced industrial order books, as well as the impact of the most aggressive monetary policy tightening in decades, and the expected slowdown in the US economy, all argue in favor of more aggressive economic activity. weak”.

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