Home/ Economy / German economy shrinks by 0.3% in Q1 of FY 2023, country enters recession

In the first quarter of 2023, the German economy contracted by 0.3 percent compared with the previous three months and entered recession, data from the statistics office showed on May 25.

Germany's gross domestic product plunged by 0.3% for the quarter when adjusted for price and calendar effects, a second estimate showed. In the previous quarter, the GDP declined by 0.5 percent in the fourth quarter of 2022.

Year-on-year, GDP fell by 0.5% when adjusted for price and calendar effects.

"Under the weight of immense inflation, the German consumer has fallen to his knees, dragging the entire economy down with him," Andreas Scheuerle, an analyst at DekaBank, said.

Apart from this the household consumption was down 1.2% quarter-on-quarter after price, seasonal and calendar adjustments, while the government spending also decreased significantly by 4.9% on the quarter.

"The warm winter weather, a rebound in industrial activity, helped by the Chinese reopening, and an easing of supply chain frictions, were not enough to get the economy out of the recessionary danger zone," ING's global head of macro Carsten Brzeski said.

However, the 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%.

"The massive rise in energy prices took its toll in the winter half-year," Commerzbank's chief economist Joerg Kraemer said.

"Looking beyond the first quarter, the optimism at the start of the year seems to have given way to more of a sense of reality," ING's Brzeski said.

Meanwhile, the German Bundesbank 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.

With agency inputs.

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Updated: 25 May 2023, 02:57 PM IST
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