Germany slips into recession as inflation hits economy

Germany fell into a recession around the turn of the year, official figures published Thursday showed, as Europe’s largest economy contracted by 0.3% over the first three months of 2023.

The negative growth figure was revised down by the federal statistics agency from an initial estimate of zero percent. The poor performance was the second consecutive quarter of negative growth, following a 0.5% contraction in the last three months of 2022, as Germany battled an energy crisis unleashed by Russia’s invasion of Ukraine.

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The dwindling of energy supplies from Russia following the outbreak of the war sent prices soaring, stoking inflation and weighing on the economy. The impact of higher prices was felt particularly by consumers in the first quarter of 2023, according to Destatis, the Federal Statistical Office, as they reined in spending on items such as food and clothing.

Germany, which had long been heavily reliant on Russian energy imports, was left particularly exposed following the Russian invasion. The recession was less severe than some early predictions made at the start of the conflict, but mild winter weather and the easing of supply chain problems following the COVID pandemic were “not enough to get the economy out of the recessionary danger zone”, said Carsten Brzeski, head of macro at the ING bank.

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The negative revision to the growth figure was no surprise following a string of weak economic indicators, LBBW bank analyst Jens-Oliver Niklasch said. “The early indicators suggest that things will continue to be similarly weak in the second quarter of 2023,” Niklasch said.

Germany’s last recession came as the coronavirus pandemic swept through Europe at the start of 2020, prompting governments to effectively shut down large swathes of the economy.