Key Takeaways:
- German economy entered a recession in early 2023 as inflation started to hurt consumers.
- This new-born technical recession can spiral into a tangible loss for the economy if it continues.
- German GDP data shows “surprisingly negative signals.”
YEREVAN (CoinChapter.com)- The German economy is passing through its time of excruciating trials.
It seems that the government’s openhanded external politics ripple back to The Fatherland itself. Let’s learn how it came to this point.
What Caused The Germany Recession
Germany’s gross domestic product (GDP) fell two quarters: by 0.5% in Q4/2022 and by 0.3% in Q1/2023.
Generally, two consecutive quarters of GDP loss jump-start what economists call a technical recession. That corroborated with sticky inflation, with consumer prices hitting 7.2% in April, down from its 8.5%-high in October 2022 but higher overall.
Household consumption was down 1.2% quarter after quarter, while government spending decreased by 4.9% in Q1.
Three main reasons behind this pattern are present: the Covid-19 Pandemic, the Ukraine-Russia war, and, in effect, the energy crisis in Germany amid sanctions on Russia.
Reactions and expectations
Germany’s Finance Minister Christian Linder said that Germany is losing its potential for growth, comparatively, to other developed nations.
“I don’t want Germany to play in a league in which we have to relegate ourselves to the last positions”
he added.
Robert Habeck, Germany’s current Economy Minister, said that initially, Germany expected a much more bleak forecast than the reality today, noting that they are “fighting our way out of this crisis.”
Andreas Scheuerle, an analyst at asset management provider DekaBank had this say about the current state of affairs, noting:
“Under the weight of immense inflation, the German consumer has fallen to his knees, dragging the entire economy down with him.”
Experts See Solutions Ahead
Despite the grim numbers and reactions, investments in Germany are up in the first three months of 2023 after their bad performance last year.
For instance, machinery and equipment increased by 3.2% QoQ, while construction investments rose by 3.9% in the same period.
Interestingly enough, exports increased by 0.4% QoQ, but imports decreased by 0.9%
Good Morning from #Germany, where labor productivity per person is stagnating. After corona, many people want to work fewer hours. This also explains why Germany slipped into recession despite full employment. pic.twitter.com/Ud9TCRAhp0
— Holger Zschaepitz (@Schuldensuehner) May 26, 2023
The Central German Bundesbank, nonetheless, expects the economy to develop modestly in Q2 as the abovementioned rebounds will postpone stagnating household consumption and slumps in construction projects, in accordance with their monthly reports.
The German state-owned broadcaster Deutsche Welle sees the solution in government-provided relief packages. They expect the government to intervene to tackle the crisis.
Yet, the German Chancellor Olaf Scholz himself brushed off any worry by saying that the outlook for the economy is “very good.”
