Germany’s economy enters recession in Q1 as GDP falls by 0.3%

Oluwanifemi Ojo
Oluwanifemi Ojo
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Recent data updated by the federal statistical agency reveals that the German economy experienced an unforeseen decline during the initial quarter of this year, officially placing the nation in a state of recession.

According to Reuters, the Gross Domestic Product experienced a decline of 0.3% during the quarter, after being adjusted for both price and calendar effects.

The data which was released by the statistics office on Thursday, also revealed that the fall follows a decline of 0.5% in the fourth quarter of 2022, which is a commonly used indicator of a recession.

The initial estimate had shown that the GDP remained stagnant in the first quarter, with Germany narrowly avoiding a recession.
When comparing year-on-year figures and adjusting for price and calendar effects, the GDP experienced a 0.5% decline.

An analyst at DekaBank, Andreas Scheuerle, expressed his views on the situation, stating, “Under the weight of immense inflation, the German consumer has fallen to his knees, dragging the entire economy down with him.”

Household consumption experienced a decline of 1.2% quarter-on-quarter after adjustments were made for price, seasonal variations, and calendar effects. In addition, government spending also decreased significantly by 4.9% during the quarter.

Reflecting on the outlook beyond the first quarter, ING economist Brzeski mentioned that the initial optimism at the beginning of the year seems to have given way to a more realistic sentiment.

Various factors, such as a decrease in purchasing power, reduced industrial orders, tightening monetary policies, and the expected slowdown of the U.S. economy, all contribute to a case for weak economic activity.

Following the decline in the Ifo business climate on Wednesday, Commerzbank’s Kraemer noted that all key leading indicators in the manufacturing sector are now showing a decline.

However, the German Bundesbank anticipates modest economic growth in the second quarter. They expect a rebound in the industrial sector to offset stagnant household consumption and a slump in construction, as stated in a monthly economy report published on Wednesday.

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