Germany Slips into Recession as Inflation Hits Europe’s Largest Economy

Germany enters recession due persistent inflation and reduced consumer spending.

Europe’s largest economy has been pushed into a recession by persistent inflation, last year’s energy price shock, reduced consumer spending and dried-up Russian gas supplies among other factors.  

Data released by German’s federal statistical office on Thursday showed a 0.3% drop in the Gross Domestic Product (GDP) of the country during the January to March quarter of 2023. The agency had originally estimated zero growth for the first quarter of this year.

The revised numbers confirm that the German economy shrank for two straight quarters – with the GDP falling 0.5% in the December ending quarter of 2022 – defining a recession. 

The inflation rate of Germany in April stood at 7.2%. In the first quarter, household spending fell by 1.2% as fewer people were willing to spend big on furnishings, food, and clothing. In addition, government spending decreased by 4.9% from the previous quarter. Additionally lower were industrial orders, which reflected how increasing energy prices were affecting industries.

High price increases continue to be a burden on the German economy at the start of the year, reflected by the downfall in overall household spending, the office added. 

However, more recent PMI survey data indicated earlier this week that economic activity in Germany rose again in May, despite a severe decline in manufacturing. This suggests that the recession may only last a short while.

According to analysts, the worst-case scenario of a severe recession was not the overall decline in GDP. In the coming months, Germany’s economy is projected to perform worse due to a decline in spending power, fewer manufacturing sector orders, higher interest rates, and a downturn in global economic growth in nations like the US.

Get Daily Prediction & Stocks Tips On Your Mobile