Germany plunged into a technological recession in the first quarter

Germany entered a technological recession in the first quarter of 2023 after contracting GDP for the second year in a row. /AFP

Germany plunged into a technological recession in the first quarter of 2023 after a second straight year of contraction in gross domestic product (GDP) on the back of falling industrial production, inflation and high interest rates.

Seasonally adjusted data released by the Destatis Institute for Statistics on Thursday showed GDP of Europe’s largest economy contracted by 0.5% in the October-December quarter, compared to the previous three months in the January-March quarter. decreased by 0.3%.

Year-on-year, the metric contracted by 0.5% in the first three months of the year.

Germany thus plunged into a technological recession. This is defined as two consecutive quarters of declining economic activity.

It is the first time such an event has occurred in a European country since the COVID-19 pandemic that caused GDP declines in the first and second quarters of 2020.

German industry, which has long relied on Russian gas, was hit hard last year by Moscow cutting supplies and soaring prices following Western sanctions over its invasion of Ukraine.

Nevertheless, the German economy appeared to hold up better than expected thanks to massive public aid, increased use of liquefied gas and lower gas prices earlier in the year.

The industry also benefited from the reopening of China’s economy after the pandemic.

ING bank expert Carsten Brzeski said the recession appeared to be receding but “optimism gave way to pragmatism” and “Germany fell into recession”.

“Black Sheep”.

Several economic indicators for March showed conditions including industrial production, which is central to Germany’s economic model, which fell 3.4% compared to February.

Similarly, automobile production fell by 6.5% and construction contracted by 4.6%.

Industrial orders also fell sharply in March, down 10.7% from February, an unprecedented number since the pandemic trough. Exports essential to the sector fell by 5.2%.

All this came in the context of falling domestic consumption due to inflation of over 7%, which is still very high by German standards.

Overseas, “geopolitical turmoil, high inflation and a loss of purchasing power” have caused the country’s trading partners to reduce their imports of German goods, according to the DIHK Economic Research Institute.

Despite these conditions, the German government expects a gradual recovery in activity throughout the year, with growth of 0.4% expected for 2023 as a whole.

“Germany’s economic outlook is very good and we are overcoming the challenges we face,” Chancellor Olaf Scholz told reporters.

The economy ministry cited “winter weakness” before seeing “significant improvement throughout the year”.

However, not everyone is so optimistic. The IMF forecast in April that German economic activity would contract by 0.1% this year and recover by 1.1% in 2024.

Germany’s situation stands out in comparison to its European neighbors, where recession risks have receded due to falling energy prices.

“Germany is seen as Europe’s potential black sheep,” said Guillaume Desjean, an analyst at Global Market Insights.

In Belgium and France, economic activity increased by 0.4% and 0.2% quarter-on-quarter in the first quarter of 2023, respectively. Italy and Spain also increased by 0.5% in the first quarter.