Data from the statistics office showed on Thursday that the German economy shrank in the first quarter of 2023 compared to the previous three months, entering recession.
A second estimate revealed that the gross domestic product decreased by 0.3% during the quarter after accounting for pricing and calendar changes. This comes after a 0.5% fall in the fourth quarter of 2022. Two consecutive quarters of contraction is the conventional definition of a recession.
The initial projection had indicated that the first quarter GDP had stagnated and that Germany had avoided a recession.
GDP decreased by 0.5% annually after accounting for price and calendar changes.
According to Andreas Scheuerle, an analyst at DekaBank, “under the weight of immense inflation, the German consumer has fallen to his knees, dragging the entire economy down with him.”
After accounting for pricing, seasonal, and calendar changes, household consumption decreased by 1.2% from one quarter to the next. Government spending also fell sharply by 4.9% on a quarterly basis.
“The warm winter weather, a rebound in industrial activity, helped by the Chinese reopening, and an easing of supply chain frictions, were not enough to get the economy out of the recessionary danger zone,” said Carsten Brzeski, global head of macro at ING.
In contrast, after a dismal second half of 2022, investment increased in the first three months of this year. When compared to the prior quarter, investment in machinery and equipment climbed by 3.2%, and investment in construction increased by 3.9%.
Trade made helpful contributions as well. While imports decreased 0.9%, exports increased 0.4%.
Joerg Kraemer, chief economist at Commerzbank, stated that “the enormous rise in energy prices took its toll in the winter half-year.”
Unavoidable as it was, a recession has occurred, and the question now is whether or not there will be a recovery in the second half of the year.