Germany Falls Into Recession As Inflation Hits Economy

Prateek Mattoo
May 29, 2023
1,121

According to an adjustment to growth estimates, persistent inflation helped push Germany into recession in the first three months of the year. According to economists, Europe’s greatest economy suffered when Russian gas supplies dried up during the invasion of Ukraine. According to the statistics agency, the economy fell by 0.3% between January and March. This came after a 0.5% decline in the final three months of last year. When a country’s economy shrinks for two consecutive three-month periods or quarters, it is said to be in recession.

Why In the News?

The German Economy Suffered An Unexpected Dip In The First Quarter Of This Year, Putting The Country Formally Into Recession.
Data Released Thursday By The Federal Statistical Office Shows Germany’s Gross Domestic Product, Or GDP, Down By 0.3 % In The Period From January To March.
It Follows A Drop Of 0.5 % In Europe’s Biggest Economy During The Last Quarter Of 2022 As Germany Battled An Energy Crisis Unleashed By Russia’s Invasion Of Ukraine.
2 Consecutive Quarters Of Decline Constitute A Technical Recession.

What Is Recession?

A Recession Is A Significant Downturn In Economic Activity.
When Two Consecutive Quarters Are In Negative Gross Domestic Product (GDP) Growth Mean Recession, Although More Complex Formulas Are Also Used.

Germany Falls Into Recession As Inflation Hits Economy

Why Did Germany Have A Recession?

Dwindling Energy Supplies From Warring Russia Have Pushed Prices Up, Stoking Inflation.
Household Consumption Dropped To 1.2% Quarter-on-quarter After Price, Seasonal And Calendar Adjustments.
Economists Said High Inflation Hit Consumer Spending, With Prices In April 7.2 Per Cent Higher Than A Year Ago.
Germany’s Inflation Rate Stood At 7.2% In April, Above The Euro Area’s Average But Below The UK’s 8.7%.
Higher Prices Have Weighed On Household Spending On Things Such As Food, Clothing And Furniture.
Industrial Orders Are Also Weaker, Reflecting The Impact Of Higher Energy Prices On Businesses
Originally, The Agency Had Estimated Zero Growth For The First Quarter Of This Year, Suggesting Germany Would Side-Step A Recession.
However, The Revised Figures Showed Household Spending Was 1.2% Lower Than In The Previous Quarter.
Government Spending Was 4.9% Lower, And Car Sales Also Fell After Government Grants For Electric And Hybrid Cars Were Scaled Back.
The Recession Was Less Severe Than Some Had Predicted, Given Germany’s Heavy Reliance On Russian Energy. A Mild Winter And The Reopening Of China’s Economy, Helped Ease The Impact Of Higher Energy Prices.
Private Sector Investment And Exports Rose, But That Was Not Enough To Get Germany Out Of The “Danger Zone” For Recession, Analysts Said.
“The Early Indicators Suggest That Things Will Continue To Be Similarly Weak In The Second Quarter [Of 2023],” Said LBBW Bank Analyst Jens-Oliver Niklasch.
However, The German Central Bank, The Bundesbank, Expects The Economy To Grow Modestly In The April To June Quarter, With A Rebound In Industry Offsetting Stagnating Consumer Spending.
The IMF Has Predicted That Germany Will Be The Weakest Of The World’s Advanced Economies, Shrinking 0.1% This Year, After It Upgraded Its Forecast For The UK From Minus 0.3% To Growth Of 0.4%.

What Is GDP?

Gross Domestic Product Is A Monetary Measure Of The Market Value Of All The Final Goods And Services Produced And Sold In A Specific Time Period (Generally 1 Year) By A Country Or Countries.

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