BERLIN — Germany’s economy unexpectedly contracted in the first three months of this year, marking one of the definitions of a recession – the contraction in the second quarter.
Germany’s gross domestic product (GDP) fell by 0.3% from January to March, according to data released by the Federal Statistical Office on Thursday. This follows Europe’s largest economy’s 0.5% decline in the final quarter of 2022.
While two consecutive quarters of recession is a common definition of a recession, economists at the Eurozone Business Cycle Dating Commission use broader data, including employment data. Germany is one of 20 countries that use the Euro currency.
Franziska Palmas, senior European economist at Capital Economics, said domestic employment rose in the first quarter and inflation eased, but higher interest rates will continue to weigh on spending and investment.
“Germany is experiencing a technological recession and by far the worst performance of any major eurozone country in the last two quarters,” Palmas said, adding that he expected further weakness in the coming years.
The numbers are a blow to the German government. The German government boldly doubled its growth forecast for this year last month after feared winter energy shortages failed to materialize. The report forecast economic growth of 0.4%, beating the 0.2% expansion expected in late January, but the forecast may need to be revised downwards in the future.
Economists said high inflation hit consumer spending, pushing prices up 7.2% in April from a year earlier.
The broadest measure of economic output, GDP reflects the total amount of goods and services produced in a country. Some experts question whether the figure alone is a useful indicator of economic prosperity, given that it does not distinguish between types of spending.
Initial estimates showed the euro zone economy as a whole grew just 0.1% in the first quarter, with wage growth outpaced and inflation hurting people’s willingness to spend.
The US also released disappointing growth forecasts on Thursday, fueling fears that the world’s largest economy could slip into recession.
The International Monetary Fund, which had predicted the UK’s worst performance of the seven major industrialized nations this week, said it would avoid a recession this year.
“The UK, for example, is likely to do better than Germany,” IMF Managing Director Kristalina Georgieva said on Tuesday.