The German economy went into recession during the winter months. Still high inflation suppresses consumer spending and slows economic production. The German economy shrank in the first quarter.
The Federal Statistical Office in Wiesbaden revised its initial forecast for the end of April to minus 0,0 percent from the previous quarter from 0,3 percent.
“After GDP had already dipped into the red at the end of 2022, the German economy recorded two negative quarters in a row,” said Ruth Brand, Head of the Federal Statistical Office. By common definition, an economy is in recession if there are two consecutive quarters with a decline in economic output.
Outlook Recession
But this does not mean that the year as a whole will be negative. Thanks mainly to the mild winter, worst-case scenarios did not materialize – such as a lack of gas that could leave deep wounds. Still, prospects for Europe's largest economy as a whole have been under pressure throughout the year, according to experts. The International Monetary Fund assumes that economic growth will likely hover around the zero line.
The high inflation rate in Germany, which was still 7,2 percent in April compared to the same month last year, will likely be the determining factor. “The huge rise in energy prices paid off during the winter months,” said Commerzbank's chairman. "Unfortunately, there is no fundamental improvement in sight because after yesterday's decline in the ifo business environment, all key leading indicators in the manufacturing sector are now falling." economist, Jörg Krämer.
Consumer spending dropped significantly
In particular, private consumption expenditures decreased by 1,2 percent in the first three months of this year. High inflation erodes the purchasing power of consumers. According to the information obtained, households spent less on food-beverage, clothing, shoes and furniture compared to the previous quarter.
“Under the brunt of massive inflation, German consumers got down on their knees and took the entire economy with them,” said Andreas Scheuerle of Deka-Bank. Government consumer spending also fell almost five percent from the previous quarter.
"This is a task for politicians," said Federal Finance Minister Christian Lindner, in light of weak economic data. Germany is threatening to slide into the relegation areas. To counter this, the government will speed up the planning and approval processes and attract more skilled workers. Chancellor Olaf Scholz boosts confidence: “The prospects for the German economy are very good.” Economy Minister Robert Habeck pointed out that the current situation is primarily due to the intense dependence on Russia in energy. “We are fighting to get out of this crisis,” the green politician said.
The opposition criticized the traffic light government's economic policy. “This should wake up the chancellor,” said Friedrich Merz, head of the CDU. “The way the traffic light works makes many companies doubt Germany's future as a workplace.” Nothing was heard of the Chancellor's "joint action" with the social partners to fight inflation "for months". “High energy prices and the lack of a clear line in economic policy are disturbing entrepreneurs and employees,” Merz said. "By now traffic lights should stop talking good about the situation," said Jens Spahn, vice-chairman of the Union parliamentary group. “The economic miracle will not fall from the sky.”