According to preliminary estimates, Germany’s gross domestic product (GDP) remained stagnant at zero growth in the first quarter, narrowly avoiding a recession. However, recession fears were reignited earlier this month when statistics indicated that German industrial production declined more than expected in March, hampered by a disappointing performance in the key automobile industry.
Germany is the first big country to officially enter a recession since the Covid-19 pandemic. It is the product of excruciatingly high inflation and the most aggressive monetary tightening cycle in decades.
According to Germany’s statistics agency, the economy contracted by 0.3 per cent in the first quarter of the year, following a 0.5 per cent contraction in the final three months of 2022.
Flashback
A mild winter ensured that those worst-case scenarios were avoided. Nonetheless, “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,” Carsten Brzeski, an economist at ING, wrote in a note on Thursday morning.
Germany may be more exposed to the Ukraine conflict than most big economies, but it is not a large anomaly.
What they’re saying
Last quarter, household consumption declined 1.2 per cent, owing to lower purchases of food, clothing, and new cars.
The bigger picture
The bottom line
“A drop in purchasing power, thinned-out industrial order books as well as the impact of the most aggressive monetary policy tightening in decades, and the expected slowdown of the US economy all argue in favour of weak economic activity.”