Germany, world’s fourth-largest economy, enters recession

World’s fourth-largest economy and Europe’s largest, Germany, has entered into recession after the country’s GDP recorded its second quarterly contraction.

The country’s Gross Domestic Product (GDP) from January to March quarter fell by 0.3 per cent, data released by the Federal Statistical Office on Thursday showed. This was the second consecutive drop from the last quarter of 2022, which showed a GDP fall of 0.5 per cent. Two consecutive quarters of decline constitute a technical recession.

The figures come as a major blow to the German government after it last month estimated double growth for this year.

German GDP data showed "surprisingly negative signals," Finance Minister Christian Lindner said on Thursday. He added that comparing Germany with other highly developed economies, the economy was losing potential for growth.

"I don't want Germany to play in a league in which we have to relegate ourselves to the last positions," he said, referring to the forecasts of the International Monetary Fund, which predicted a recession in 2023 only in Germany and Britain among European countries.

Experts say that high inflation contributed to the recession, with prices in April spiking by 7.2 per cent than a year ago.

Germany’s inflation rate is above Europe’s average but below the UK's 8.7 per cent.

Inflation spiking in Germany

Data from the statistics office showed that German households decreased their spending in the first quarter, with final consumption expenditure falling 1.2 per cent over that period. Industrial orders were also weaker, reflecting the impact of higher energy prices on businesses. Government spending also witnessed a drop in the first three months of the year.

"The persistence of high price increases continued to be a burden on the German economy at the start of the year," the federal statistics agency Destatis said in a statement.