Germany, world's 4th largest economy, enters recession as inflation hits consumers
The euro fell on Thursday after Germany, Europe's largest economy, was confirmed to be in recession, while the dollar rose to a two-month high on safe-haven demand.
According to data issued Thursday by the Federal Statistical Office, Germany's gross domestic product, or GDP, fell by 0.3% from January to March. This follows a 0.5% dip in Europe's largest economy in the last quarter of 2022.
A business definition of recession is two consecutive quarters of contraction, but economists on the euro area business cycle timing committee use a broader collection of statistics, including employment figures. Germany is one of the euro area's 20 member countries.
The country's employment increased in the first quarter, and inflation has eased, but rising interest rates will continue to impact consumption and investment, according to Franziska Palmas, senior Europe economist at 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.
The numbers are a setback for the German government, which boldly boosted its growth projection for this year last month after a predicted winter energy shortage failed to materialise.
It expected that the economy would grow by 0.4%, up from the 0.2% predicted in late January, a figure that may now need to be revised downward.
According to economists, excessive inflation has hampered consumer spending, with prices in April 7.2% higher than a year ago. The total value of goods and services generated in a country is reflected in GDP. Because it does not differentiate between types of spending, several experts wonder whether the statistic alone is a useful predictor of economic prosperity.
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- With inputs from agencies
