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HomeBusinessInflation sends Germany into recession.

Inflation sends Germany into recession.

A revision to growth data indicates that persistent inflation helped drive Germany into recession in the first three months of the year.

After the Ukraine incursion, Russian gas supplies dried up, hurting Europe’s greatest economy, researchers say.

The economy shrunk by 0.3% between January and March, according to the statistics office.

This followed a 0.5% decline in the final quarter of the previous year.

A nation is considered to be in a recession when its economy contracts for two consecutive quarters.

Inflation sends Germany into recession.

“Under the weight of enormous inflation, the German consumer has collapsed, dragging the entire economy with him,” said DekaBank analyst Andreas Scheuerle.

In April, Germany’s inflation rate was 7.2%, above the euro area average but below the United Kingdom’s 8.2%.

The impact of rising prices on household expenditure on items such as food, clothing, and furniture has been significant. The decline in industrial orders reflects the effect of increased energy costs on enterprises.

“The persistence of high price increases continued to be a burden on the German economy at the start of the year,” the federal statistics agency Destatis stated in a statement.

Initially, the agency projected negative growth for the first quarter of this year, indicating that Germany would avoid a recession.

However, the revised data revealed that household expenditures were 1.2% lower than in the previous quarter.

Government expenditure and auto sales fell 4.9% due to the reduction in electric and hybrid vehicle assistance.

Given Germany’s significant reliance on Russian energy, the recession was not as severe as some had predicted. Higher energy prices were mitigated by a moderate winter and China’s reopening of its economy.

Private sector investment and exports could not remove Germany from the “danger zone” for recession, analysts said.

Jens-Oliver Niklasch, a bank analyst at LBBW, stated, “Early indications suggest that the second quarter [of 2023] will be similarly weak.”

However, the German central bank, the Bundesbank, anticipates that the economy will expand modestly from April to June, with a revival in industry offsetting stagnant consumer spending.

The IMF forecasts that Germany will be the weakest of the world’s advanced economies this year, contracting by 0.1%, after upgrading its forecast for the United Kingdom from -0.3% to 0.4% growth.

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