Germany suffered a winter recession, fresh data showed, extinguishing hopes that Europe’s top economy could escape such a fate amid the war in Ukraine.
First quarter output shrank 0.3 percent from the previous three months following a 0.5 percent drop between October and December, the statistics office said Thursday.
Its initial estimate, last month, was for stagnation. Behind the fall were a plunge in government expenditure and a decline in household spending as elevated inflation weighed on consumers. Investment was up, though, led by construction.
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.
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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.”
(Edited by : Radhika Hitkari)
