Germany’s economy has officially entered a recession, with a contraction of 0.3 percent between January and March, largely due to the adverse effects of high prices on consumer spending. This follows a 0.5 percent decline in the previous quarter of 2022.
The latest figures have been revised downward, dashing initial hopes that Europe’s largest economy had avoided a winter recession. The public was urged to reduce energy consumption after Russia’s invasion of Ukraine led to a strain in gas supplies across Europe.
Inflation in Germany has soared to double-digit figures, reaching 7.6 percent, the highest since the country’s reunification in 1990. The German statistics office reported a 1.2 percent decline in household spending during the first quarter, as people reduced expenditures on food, drinks, clothing, footwear, furniture, and new cars.
The persistently high price increases have heavily burdened the German economy, with households displaying reluctance to make purchases across various sectors, as stated by the statistics office.
Additionally, the manufacturing sector, particularly in energy-intensive industries like the German chemicals industry, experienced a decline. However, the construction sector saw growth, aided by relatively mild winter weather conditions.
Carsten Brzeski, an analyst at ING, expressed that the mild temperatures were insufficient to lift the economy out of the recessionary danger zone. He further highlighted that slow industrial orders, tighter monetary policies, and a potential slowdown in the United States all indicate a period of weak economic performance.
Moreover, Brzeski emphasized that apart from these cyclical factors, the ongoing conflict in Ukraine, demographic changes, and the ongoing energy transition will have long-term structural implications for the German economy in the years to come.