Consumers in Germany are spending less. That means Europe’s largest economy is officially in a recession.
Output in Germany dropped 0.3% in the first three months of the year, following a 0.5% contraction at the end of 2022, official data showed Thursday. The Federal Statistical Office downgraded its previous estimate of zero growth in gross domestic product (GDP) compared with the previous quarter. A recession is defined as two consecutive quarters of declining output, according to a report by CNN.
“The persistence of high price increases continued to be a burden on the German economy at the start of the year,” the office said. “This was particularly reflected in household final consumption expenditure, which was down 1.2% in the first quarter of 2023.”
European energy prices were already rising when the conflict in Ukraine ignited in February last year sending them soaring to record highs. Moscow then went on to throttle gas supplies to European countries, prompting Germany to declare an emergency.
In August, Russia closed its Nord Stream 1 pipeline for maintenance and then extended the closure indefinitely. This pipeline was Germany’s largest source of Russian natural gas.
Natural gas prices have since tumbled and now stand at levels last seen in late 2021, pointing to easing inflationary pressures on consumers’ pockets. The annual rate of inflation in Germany slowed again in April — the first month of the second quarter — although, at 7.2%, it remained high. –CNN
Claus Vistesen, chief euro-area economist at Pantheon Macroeconomics, said spending by consumers in the first quarter was crimped by “the shock in energy prices.” In a note, Vistesen added: “We think consumers’ spending is now rebounding as inflation eases. We doubt that GDP will continue to fall in coming quarters, but we see no strong recovery either.”