Germany slips into recession as Q1 GDP is revised down

Before sunrise, residential and office buildings in the banking metropolis of Frankfurt are reflected in the quietly flowing River Main.

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The German economy entered a technical recession in the first quarter of this year as households tightened their spending.

The GDP (gross domestic product) for the first three months of the year was revised down from zero to -0.3%, according to data released by the German Statistics Office on Thursday.

This comes after Germany contracted by 0.5% in the final quarter of 2022. Two consecutive quarters of negative growth define a technical recession.

Europe’s largest economy has been under intense pressure, especially after Russia’s invasion of Ukraine and the subsequent decision by European leaders to cut ties with Moscow.

German households spent significantly less in the first quarter, with final consumption spending falling by 1.2% over the same period, according to the Statistics Office, as consumers shy away from spending cash on clothes, furniture, cars and more.

Claus Vistesen, chief euro area economist at Pantheon Macroeconomics, said in a note to clients: “After all, Germany did slip into recession at the end of last year as shocks to energy prices weighed on consumer spending. expenditure.”

He added that German GDP was unlikely to continue to decline in the coming quarters, “but we also don’t see a strong recovery.”

“We expect further weakness ahead,” said Franziska Palmas, senior European economist at Capital Economics.

The latest economic development comes against a backdrop of high inflation and high interest rates in the region. The European Central Bank is expected to raise interest rates again at its next meeting on June 15. The central bank has raised interest rates by 375 basis points since July.

Bundesbank President Joachim Nagel said earlier this week that the ECB had “several” rate hikes ahead. He is one of the most hawkish members of the central bank.

Capital Economics’ Palmas added: “Rising interest rates will continue to weigh on consumption and investment, and exports may also be affected by economic weakness in other developed markets. Our forecast is for further contraction in the third and fourth quarters.”

During European morning trade, about 2.46% of 10-year German bunds changed hands.

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