Germany suffers winter recession on bleaker first quarter

The result is a setback for Germany, which despite escaping the bleakest scenarios feared in the aftermath of Russia’s invasion has nevertheless succumbed to a recession that Chancellor Olaf Scholz appeared to rule out in January.

The culprit is the key manufacturing sector, where a deepening downturn is casting doubt on the rebound many anticipate for the coming quarters. Indeed, industrial weakness is taking a toll on the business outlook.

A gauge of expectations by the Ifo institute fell for the first month in eight in May, while a survey by lobby group DIHK pointed to zero GDP growth for 2023.A Bundesbank report this week offered some optimism — suggesting the economy may grow “slightly” this quarter as large order backlogs, an easing of supply bottlenecks and lower energy costs support manufacturers.

But goods demand is cratering as consumers faced with elevated inflation prefer to splurge on leisure and travel. That’s making economic growth increasingly uneven — a trend some analysts say isn’t sustainable. “Something will have to budge,” ING economist Carsten Brzeski said this week.

It’s likely services will “increasingly suffer under weak manufacturing activity and weak disposable incomes.”