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Germany’s GDP shrinks by 0.3% in Q1 to put Europe’s biggest economy into recession


The German economy contracted in the first quarter of 2023 compared with the previous three months, thereby entering a recession, data from the statistics office showed on Thursday, according to Reuters.

Gross domestic product fell by 0.3% for the quarter when adjusted for price and calendar effects, a second estimate showed. This follows a decline of 0.5% in the fourth quarter of 2022. A recession is commonly defined as two successive quarters of contraction.

The first estimate had shown GDP stagnating in the first quarter and Germany skirting a recession. Year-on-year, GDP fell by 0.5% when adjusted for price and calendar effects.

Household consumption was down 1.2% quarter-on-quarter after price, seasonal and calendar adjustments. Government spending also decreased significantly by 4.9% on the quarter.

By contrast, investment was up in the first three months of the year, following a weak second half of 2022. Investment in machinery and equipment increased by 3.2% compared with the previous quarter, while investment in construction went up 3.9% on quarter.

There were also positive contributions from trade. Exports rose 0.4%, while imports fell 0.9%.

A recession could not be avoided and now the question is whether there will be any recovery in the second half of the year.

A drop in purchasing power, thinned-out industrial order books, aggressive monetary policy tightening, and the expected slowdown of the U.S. economy, all argue in favour of weak economic activity.

Following Wednesday’s decline in the Ifo business climate, all key leading indicators in the manufacturing sector are now falling, Commerzbank’s chief economist Joerg Kraemer said.

The German Bundesbank, however, expects the economy to grow modestly in the second quarter as a rebound in industry more than offsets stagnating household consumption and a slump in construction, according to a monthly economy report published on Wednesday.