The stubbornly high inflation dampened the buying mood of the Germans. The German economy slides into a recession. The prospects for the year as a whole are also pessimistic.
The German economy slipped into a recession in winter. Gross domestic product (GDP) shrank by 0.3 percent in the first quarter compared to the previous quarter, the Federal Statistical Office announced on Thursday. In an initial estimate, the authority assumed that economic output would stagnate at the beginning of the year.
“After GDP had already slipped into the red at the end of 2022, the German economy recorded two negative quarters in a row,” says Ruth Brand, President of the Authority. If economic output shrinks for two quarters in a row, economists speak of a technical recession. This does not mean that the full year is negative. Mainly thanks to the mild winter, the worst scenarios did not materialize – such as a lack of gas, which would have left deep scars.
Economy: High prices sap purchasing power
In view of the inflation, private consumption failed to support the economy. According to the information, private households spent less on food and beverages, clothing, shoes and furniture than in the previous quarter. High inflation is a challenge for consumers: it is eroding their purchasing power. People can afford less for one euro. The upward pressure on prices has weakened recently. However, the annual inflation rate in April was still relatively high at 7.2 percent.
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According to the statisticians, positive impetus came from exports and investments at the beginning of the year. At the same time, investments in construction increased, also because of the favorable weather, as well as investments by companies in equipment such as machines, devices and vehicles.
Recession: Expectations for full year subdued
According to experts, the prospects for Europe’s largest economy are subdued for the year as a whole. The International Monetary Fund assumes that economic growth is likely to hover around the zero line. The IMF is therefore more pessimistic than the federal government, which expected GDP growth of 0.4 percent in its spring projection presented at the end of April. In its most recent forecast, the EU Commission expected economic growth of 0.2 percent for Germany.