By Katabella Roberts
Germany, Europe’s largest economy, has fallen into recession, according to official data released on May 25.
Data from Germany’s Federal Statistics Agency Destatis showed gross domestic product (GDP) fell 0.3 percent in the quarter when adjusted for price and calendar effects, following a 0.5 percent decline in late 2022.
Last month, Destatis estimated zero growth for the first quarter of this year, ruling out a recession.
“After GDP growth entered negative territory at the end of 2022, the German economy has now recorded two consecutive negative quarters,” Ruth Brand, president of the Federal Statistical Office, said in a statement.
The standard definition of a recession is based on two consecutive quarters of decline in gross national product.
Destatis noted that persistently high prices remained a burden on the German economy, as household consumption fell 1.2 percent in the first quarter of 2023 after seasonal and calendar adjustments.
“Households’ reluctance to buy was evident across sectors,” the statement said. “Households spent less on food and beverages, clothing and footwear, and furnishings.”
Households also bought fewer new cars, which the agency said was likely due in part to the end of subsidies for plug-in hybrids and the reduction of subsidies for electric vehicles in early 2023.
Food and energy prices remain high
Government spending also fell by 4.9 percent compared to the previous quarter, the data showed.
In contrast, investment increased from the fourth quarter of 2022, following a weak second half of 2022. Investment in machinery and equipment rose 3.2 percent from the previous quarter, while investment in construction rose 3.9 percent, thanks in part to good. weather
There was also a positive contribution from trade compared to the fourth quarter of 2022. Exports of goods and services rose 0.4 percent, while trade in plastics and metal products “showed particularly robust growth,” the agency said. Imports fell 0.9 percent, partly due to lower imports of fossil fuels such as crude oil and mineral oil products, as well as chemicals and chemical products.
Destatis noted that growth in energy and food prices in Germany remained high and mainly contributed to the 7.3 percent increase in household final consumption expenditure on an annual basis at current prices.
Energy prices in Europe were already rising before Russia’s February 2022 invasion of Ukraine, formerly Germany’s main gas supplier, but have since risen after Russia shut down its Nord Stream 1 pipeline in August.
Energy prices in April increased by 6.8 percent year-on-year. Meanwhile, the prices of food products increased by 17.2 percent year-on-year in April. Overall, Germany’s inflation rate was 7.2 percent in April, higher than the eurozone average but lower than the previous month’s 7.4 percent.
Meanwhile, the International Monetary Fund (IMF) predicts that the German economy will decrease by 0.1 percent this year.
The economy is “very good”, says the chancellor
Although the nation meets the technical definition of a recession, a separate Bundesbank report on May 24 took a more optimistic tone, with officials predicting the economy will grow modestly in the second quarter, partly due to a recovery in industry that will offset stagnant households. consumption and construction decline.
“The easing of supply bottlenecks, a strong order backlog and falling energy prices are contributing to the continued recovery of the industry,” the Bundesbank said. “This should also support exports, especially as the global economy has gained some momentum.”
However, officials noted that private consumption is likely to remain weak as the rapid growth in nominal incomes only serves to buffer further declines in real wages.
Germany’s once-booming manufacturing sector has been hit by a sharp downturn in recent months, with the sector contracting at its fastest pace in nearly three years in April, although preliminary survey data released earlier this week showed business activity in the country was expanding again. may
Speaking at a news conference in Berlin on Thursday, German Chancellor Olaf Scholz appeared to brush off the latest data and insisted the outlook for the economy was “very good”, while noting that his government was taking measures to attract foreign workers and expand renewable energy. production to contribute to the development of the economy.
“There is a lot of investment in Germany in terms of batteries and shipyards, which are growing significantly, and so we can be confident,” he said.
Reuters contributed to this report.