BERLIN – Germany’s economy shrank unexpectedly in the first three months of this year, entering a second period of contraction which is one definition of recession.
Data released Thursday by the Federal Statistical Office showed that Germany’s gross domestic product, or GDP, fell by 0.3% from January to March. This follows a 0.5% decline in Europe’s largest economy in the last quarter of 2022.
Two quarters in a row means a recession, although economists at the euro business partners’ committee use more data, including employment figures. Germany is one of the 20 countries that use the euro.
Employment in the country rose in the first quarter and inflation has eased, but high interest rates continue to weigh on investment and income, said Franziska Palmas, European economist at Capital Economics.
“Germany has experienced a technical crisis and has been the best performing eurozone economy in the last two quarters,” Palmas said, predicting further weakness ahead.
The figures are a major blow to the German government, which last month confidently increased its growth forecast for this year after a severe winter storm failed to materialise. It said the economy would grow by 0.4% – up from the 0.2% growth forecast at the end of January – which is expected to be revised downwards.
Economists also said that inflation is hurting consumer spending, and prices in April were 7.2% higher than a year ago.
GDP – a gross measure of economic output – shows the total value of goods and services produced in a country. Some experts question whether the number alone is a useful economic indicator because it does not distinguish between different types of money.
Overall, the eurozone economy grew slightly by 0.1% in the first quarter, according to preliminary estimates, as inflation is weighing on people’s appetite for spending as their wages fail.
The US reported disappointing growth on Thursday, raising fears of a global recession.
The International Monetary Fund predicted this week that the United Kingdom would avoid a recession this year after expecting it to be the worst performer among the Group of Seven.
IMF Managing Director Kristalina Georgieva said on Tuesday that “we could see the UK doing better than Germany, for example.”