Germany, Europe’s largest economy, has officially entered a recession as the first-quarter data reveals a contraction in economic output. This disappointing news dashes hopes that the country would be able to evade a recession amidst the ongoing conflict in Ukraine.
According to the German statistics office, the gross domestic product (GDP) declined by 0.3% in the first quarter of 2023 compared to the previous three months. This follows a 0.5% drop experienced between October and December of 2022. The initial estimate, released last month, had predicted stagnation rather than contraction. This economic slump in Germany marks a technical recession, defined as two consecutive quarters of negative growth.
The decline in economic output can be primarily attributed to a significant decrease in household spending across various sectors. German households showed reluctance to make purchases, resulting in reduced expenditures on food and beverages, clothing and footwear, as well as furnishings. Additionally, the reduction in incentives led to a decrease in the purchase of electric cars.
Moreover, the statistics office noted a substantial decline in government expenditure during the first quarter. However, there was a slight increase in investment, supported by construction activity that benefitted from unseasonably warm weather.
