German economy enters recession, shrinks by 0.3%.

The German economy shrank slightly in the first quarter of 2023 compared to the previous three months, entering a technical recession, according to data published on Thursday.

Earlier estimates showed gross domestic product (GDP) stagnating at zero growth in the first quarter, meaning Germany would narrowly escape a recession.

What did the data show?

GDP fell by 0.3% in the quarter after adjusting for price and seasonal effects, according to data from the Federal Statistics Office, Destatis.

“After GDP growth entered negative territory at the end of 2022, the German economy has now recorded two negative quarters,” said Destatis President Ruth Brand.

The January to March figures follow a 0.5% decline in the fourth quarter of 2022. A recession is usually defined as two consecutive quarters of contraction.

Inflation continued to weigh on the German economy in the quarter, the bureau said. This was reflected in household spending, which fell by 1.2% quarter-on-quarter after adjusting for price and seasonal differences.

Private households spent less on food, beverages, clothing, shoes and furniture than in the previous quarter.

They also bought a few new cars, possibly due to the end of government subsidies at the end of 2022.

There was some light when it came to investment, which increased in the first three months of the year after a weak second half of 2022.

A little darker than expected

Heavily dependent on Russian energy imports, Germany was particularly exposed after Russia’s invasion of Ukraine in February 2022.

A mild winter in Germany meant that worst-case scenarios – such as gas shortages, which would have devastated the economy – did not occur.

The latest recession in Germany came when the COVID-19 pandemic in early 2020 prompted the government to shut down all sectors of the economy.

Consumers have seen high inflation reduce their purchasing power, thereby reducing demand in the economy. Although inflation has moderated recently, the annual inflation rate of 7.2% recorded in April was still high.

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