Germany has entered a recession, and the future is not bright

Germany has fallen into recession, new data reveals, after high prices took a greater toll on the country’s economy than initially estimated.

Updated data released on Thursday by the German Federal Statistical Office shows that gross domestic product (GDP) fell by 0.3 percent in the first quarter compared to the previous three months, which also recorded a decline. Revised figures confirm that the German economy shrank for two consecutive quarters (which is the technical definition of a recession) after a drop of 0.5 percent in the three months to December. Initial estimates published in April suggested that Germany narrowly avoided recession, only stagnating with zero percent growth.

– It took several statistical revisions, but at the end of the day, the German economy actually did what we feared since last summer: it fell into technical recession – said Carsten Brzeski, global head of macroeconomics at Dutch bank ING, as reported by The Guardian.

Although investments and private sector construction increased at the beginning of the year, this was partially offset by a decline in consumer spending as higher prices forced households to save, the statistical office reported.

– The persistence of high price growth continued to be a burden for the German economy at the beginning of the year – said the statistical office.

Overall, household consumption fell by 1.2 percent in the first quarter, with consumers less willing to spend on food, clothing, and furniture. Government consumption also decreased by 4.9 percent compared to the previous quarter.

In general, Brzeski said that the overall decline in GDP ‘is not the worst possible scenario of a severe recession, but a decline of nearly one percent compared to last summer. Warm winter weather, a recovery in industrial activity, supported by the reopening of China and easing supply chain instability, were not enough to pull the economy out of the dangerous zone of recession – he added.

He also warned that the decline in purchasing power, weaker orders in the industrial sector, rising interest rates, as well as slowing foreign economic growth in countries including the USA, will likely lead to weaker economic activity in Germany in the coming months.