In the first three months of this year~, the German economy unexpectedly contracted, marking the second quarter of contraction, which is one definition of a recession. According to information made public on Thursday by the Federal Statistical Office, Germany’s GDP shrank by 0.3% from January to March. This comes after the largest economy in Europe experienced a 0.5% decline in the fourth quarter of 2022.
Recession is typically defined as two consecutive quarters of contraction, however economists on the euro area business cycle dating committee utilize a wider range of data, including employment statistics. One of the 20 nations that use the euro is Germany. Although the country’s employment increased in the first quarter and inflation has decreased, higher interest rates will continue to have a negative impact on investment and consumption, according to Franziska Palmas, senior Europe economist for Capital Economics. “Germany has experienced a technical recession and has been by far the worst performer among major eurozone economies over the past two quarters,” Palmas said, foreseeing more deterioration.
The numbers are a setback for the German government, which last month boldly boosted its growth projection for this year following the averted occurrence of a winter energy shortage. It expected that the economy would expand by 0.4%, up from the 0.2% expansion predicted in late January; nevertheless, this prediction may need to be revised down at this time.
With prices in April 7.2% higher than they were in April of last year, economists claim that rising inflation has hurt consumer spending. The worth of all the goods and services generated in a nation is reflected in its GDP. Given that it doesn’t differentiate between different forms of spending, several experts dispute whether the figure alone is a useful predictor of economic prosperity. According to preliminary estimates, the eurozone economy barely grew by 0.1% in the first quarter as people’s propensity to spend is being undermined by inflation and the lack of pay growth.
According to IMF Managing Director Kristalina Georgieva, “we’re likely to see the U.K. performing better than Germany, for example.” The United Kingdom will not experience a recession this year, according to the International Monetary Fund, which had earlier forecast that it would have one of the worst performances among the Group of Seven top industrial nations. Depressing growth projections from the US also fueled concerns about a possible recession in the biggest economy on earth.
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