Germany Enters Recession As GDP Contracts In Q1 2023

Germany, the largest economy in Europe, officially entered a recession in the first quarter of 2023. The German statistics office reported on Thursday that the revised gross domestic product (GDP) for Q1 2023 was lower than initially estimated, showing a contraction of -0.3%. This followed a 0.5% decline in the previous quarter of 2022. A technical recession is defined as two consecutive quarters of negative economic growth.

JUST IN: 🇩🇪 Germany officially enters recession.

— Watcher.Guru (@WatcherGuru) May 25, 2023

Recession Confirmed

The pressure has been mounting on Germany, particularly in the aftermath of Russia’s invasion of Ukraine. As one of the European nations heavily reliant on Russia for energy, Germany faced significant challenges. The statistics office highlighted a notable decrease in household spending during the first quarter. Final consumption expenditure saw a decline of 1.2%, as people became more hesitant to spend on items such as cars, furniture, and clothing. Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, confirmed that “Germany did fall into recession at the end of last year.”

Path to Recovery

The question now is whether Germany will rebound from the recession in the near future. According to Vistesen, while the German GDP is not expected to continue to decline, a strong recovery is unlikely. On the other hand, Franziska Palmas, senior Europe economist at Capital Economics, suggested that we may witness “further weakness from here.” Palmas also expressed concerns about the impact of higher interest rates on consumption and investment, as well as potential challenges in exports amid the economic downturn.

These recent economic developments occur amidst the backdrop of widespread high inflation and rising interest rates. The European Central Bank (ECB) is anticipated to raise rates once again at its upcoming meeting on June 15. Since July, the central bank has increased interest rates by 375 basis points. Joachim Nagel, the governor of the German central bank, stated earlier this week that the ECB is likely to raise interest rates “several” more times. Nagel is known as one of the central bank’s most hawkish members.