The German economy narrowly avoids recession

Germany – Europe’s largest economy – narrowly avoided a recession at the start of the year, with a contraction in activity during the first quarter disappointing compared to expectations.

The country did not record growth according to seasonally adjusted data, but rather recorded a decrease of 0.1 percent, compared to the fourth quarter of 2022, after a decline of -0.5 percent from October to December, the National Bureau of Statistics “Destatis” indicated on Friday.

So Germany narrowly avoided a technical recession defined by two consecutive quarters of decline in GDP.

However, the results are lower than the expectations of analysts polled by Facttest who expected a rebound of 0.2 percent.

Carsten Brzeski, an economist at ING, said that the stagnation of the German economy “shows that the number one economy in the eurozone has not escaped the threat of a slowdown.”

Thus, France’s results are better than Germany’s in the first quarter, as growth reached 0.2 percent during the same period, despite the serious slowdown that began at the end of last year and the repeated strikes against pension reform, according to a preliminary estimate by the National Institute of Statistics and Economic Studies in France. Friday.

German industry was hit hard last year after it relied on Russian gas for a long time, and Moscow’s invasion of Ukraine cut off supplies to Germany and raised prices.

However, according to Disstatis, “the positive momentum came from investments and exports” in the first quarter of the year, indicating a recovery in manufacturing activity.

This improvement was the result of a combination of factors: the recent sharp decline in energy prices, which benefits energy-intensive companies, the reopening of the Chinese economy after the closure of many cities due to COVID-19, as well as the gradual elimination of disruptions to supply chains.

The return of industrial activity contributed to compensating for the decrease in private and public consumption spending in early 2023.

The picture would have been worse without broad government support measures to mitigate the impact of rising energy costs for businesses and the loss of purchasing power for households.

Unlike France, where difficulties are likely to worsen in the coming quarters, Germany sees its economy on track to reach “acceleration during the year”, according to the Economics Ministry’s chief economist, Elga Bartsch.

Overall, hopes for an economic recovery later this year rest on continued improvement in the business climate.

In addition, Andreas Schwerle, an economist at Bank Deca, said that “the decline in inflation and large wage increases will stimulate consumption again.”

On Wednesday, the German government raised its forecast for economic growth for 2023 to 0.4 percent, from 0.2 percent in the fall.

But not all parties are optimistic. Earlier in April, the International Monetary Fund predicted that German economic activity would contract by 0.1 percent this year.

Economists warn of the negative effects associated with the European Central Bank’s apparent tightening of the cost of credit in the eurozone, in an attempt to curb inflation.

The European Central Bank has raised interest rates by 3.5 percentage points since July and is expected to raise interest rates again at its meeting next Thursday.

In particular, higher interest rates could slow the US economy, a number one customer for German exporters.

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