The German economy contracted again in the first three months of this year. The rapid rise in energy prices caused by the war in Ukraine and overall inflation have been depressing the economy for a long time. The economic prospects for the industry are currently poor. As reported by the Federal Statistical Office on Thursday, gross domestic product fell by 0.3 percent in the first quarter of this year. The statisticians are thus revising an earlier report.
Because the economy also shrank in the last quarter of 2022, the Federal Republic is in a so-called technical recession. Something like this rarely happens. Economists speak of a technical recession when gross domestic product falls for two consecutive quarters. They differentiate this type of recession from more severe economic downturns, which are even rarer. The last severe slump happened with the outbreak of the corona pandemic, when the economy shrank by almost four percent for the full year 2020. Before that, the Federal Republic had experienced a ten-year boom.
If the gross domestic product decreases like it is now, that will ultimately mean less income for German citizens. In a recession, companies are also more reluctant to hire new people. Unemployment is tending to increase. However, this negative effect is currently being counteracted by the fact that numerous companies are experiencing staff shortages due to the aging of society and are sometimes desperately looking for workers.
For the whole of 2023, most economic researchers are currently expecting a slight increase. However, the prospects are increasingly gloomy. The high prices continue to bother consumers. Inflation had weakened somewhat recently. However, annual inflation in April was still at an unusually high level of 7.2 percent. Statisticians report that private consumer spending fell by 1.2 percent in the first quarter. Consumers spent less on food and beverages, clothing, shoes and furnishings. The Germans also bought fewer cars, which probably has something to do with the reduction in premiums for electric vehicles and the elimination of premiums for plug-in hybrids.
According to the statisticians, positive impetus came from investments at the beginning of the year. Especially in construction, things went better than expected because of the mild winter. Exports also increased. However, the prospects are getting bleaker there. The mood in the export industry, which is particularly important for Germany, has deteriorated noticeably. Export expectations fell to 1.8 points in May from 6.5 points in April, reports the Ifo Institute. This is the lowest value for more than half a year. “The global interest rate hikes are slowly having an impact on demand,” says Klaus Wohlrabe, head of the Ifo surveys. “The German export economy lacks dynamism.”
The mood in the entire German economy has also deteriorated for the first time in a long time. The Ifo business climate fell in May after rising for six straight months earlier. The companies surveyed also assess the current situation as less good. The business climate is becoming more pessimistic in industry in particular, and in construction as well.
The Bundesbank gives hope that the economy will improve in the spring. “In the second quarter, economic output should increase again slightly,” says the new monthly report. The delivery bottlenecks are slowly disappearing, the industry has a large cushion of orders. In addition, energy prices have been falling for some time. Like the leading economic institutes, the federal government expects slight growth for 2023 as a whole. In the coming year, economic output will then grow strongly by 1.6 percent, according to the forecast.