German economy plunges into recession as private consumption slumps

Germany’s Federal Statistical Office (Destatis) has announced the final data on Gross Domestic Product (GDP) for the first quarter.

Accordingly, seasonal and calendar adjusted GDP in Germany shrank by 0.3 percent in the first quarter of this year compared to the previous quarter.

Destatis had predicted on April 28 that the economy would not grow in the first quarter, with leading data. The economy contracted 0.5 percent in the last quarter of last year. Thus, after the 0.3 percent contraction in the first quarter, the German economy entered a technical recession, which is expressed as “a contraction in GDP for two consecutive quarters”.

Compared to the first quarter of last year, the country’s GDP decreased by 0.5 percent.

“After GDP growth remained below zero at the end of 2022, the German economy contracted for two consecutive quarters,” said Ruth Brand, President of Destatis.

In the first quarter, private expenditures decreased by 1.2 percent compared to the previous quarter due to the decrease in the purchasing power of consumers due to high inflation.

Public expenditures fell by 4.9 percent. A 3.2 percent increase in machinery and equipment expenditures and a 3.9 percent increase in construction investments were observed.

In the same period, exports of goods and services increased by 0.4 percent, while imports decreased by 0.9 percent.

“Continuing high price increases continued to weigh on the German economy at the start of the year,” Destatis said in a statement. Households spent less on food and drink, clothing, shoes and furniture than in the previous quarter. Also, fewer new cars were bought at the beginning of the year due to the removal of incentives for plug-in hybrid vehicles and lower electric vehicle premiums.” statements were included.

Although the bottlenecks that emerged during the COVID-19 epidemic eased, the country’s economy is adversely affected by the stagnation in demand as a result of the rise in interest rates, the decrease in confidence in the economy and the decrease in the purchasing power of consumers in an unusually high inflation environment.

The German government expects 0.4 percent growth in the economy this year. Leading German economic institutes predict the country’s economy to grow by 0.3 percent this year.

The ongoing war in Ukraine, demographic change and the current energy transition will structurally weigh on the German economy in the coming years.

ING Head of Global Macro Research and Germany Chief Economist Carsten Brzeski, in his assessment of Germany’s first quarter economic growth, stated that the German economy entered a technical recession by “doing the thing that was feared since last summer this winter”, “It is not the worst scenario of a serious recession, but last summer. It’s almost a 1% decrease compared to used the phrase.

“The recovery in industrial activity, aided by the warm winter weather, the reopening of the Chinese economy and the alleviation of supply chain disruptions, has not been enough to push the economy out of the recession danger zone,” Brzeski said. Private consumption continued to be negatively impacted by still high retail energy prices.” said.

Looking beyond the first quarter, Brzeski said that the optimism at the beginning of the year seems to have given way to a more real feeling. is accelerating.

Alongside these cyclical factors, the ongoing war in Ukraine, demographic change and the current energy transition will structurally weigh on the German economy in the coming years.” made its assessment.

Commerzbank Chief Economist Jörg Kramer stated that the conditions for a technical recession were met, and said, “The great increase in energy prices showed its effect in the first half of the year.”

Annual inflation, which was 7.4 percent in March, decreased to 7.2 percent in April, close to expectations, due to the fall in energy prices.

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