POLITICS & INSTITUTIONS - EUROPE

Gross domestic product

German economy enters technical recession



Data from the German federal statistics office issued on 25 May 2023 indicates that the German economy has formally entered a technical recession. Photo: Shutterstock

Data from the German federal statistics office issued on 25 May 2023 indicates that the German economy has formally entered a technical recession. Photo: Shutterstock

Data unveiled on Thursday reveals that the German economy contracted in the first quarter of 2023, following a contraction observed in the fourth quarter of 2022, consequently resulting in a technical recession.

The largest economy in the European Union, known for its economic prowess, has experienced a decline in its GDP for two consecutive quarters. In Q1 2023, there was a contraction of 0.3%, followed by a contraction of 0.5% in Q4 2022. This marks the second time in the past four years that the German economy has entered a technical recession.

The previous instance occurred during the covid-19 pandemic, when the economy contracted in Q1 and Q2 of 2020 due to health-related economic restrictions.

A ‘technical recession’ is typically defined as two consecutive quarters of economic contraction.

“After GDP growth entered negative territory at the end of 2022, the German economy has now recorded two consecutive negative quarters,” says Ruth Brand, president of the federal statistical office, Destatis.

Household consumption

At the beginning of the year, the German economy continued to grapple with persistently high price increases, placing a burden on its overall performance. This was notably evident in household final consumption expenditure, which experienced a decline of 1.2% in the first quarter of 2023 when adjusted for price, seasonal and calendar variations.

Additionally, government final consumption expenditure also significantly decreased by -4.9% compared to the previous quarter.

Trade and investment

In contrast, there was an improvement in investment compared to Q4 2022. After a relatively weak performance in the latter half of 2022, gross fixed capital formation in the construction sector witnessed a significant increase of 3.9% when adjusted for price, seasonal and calendar variations.

Foreign trade also made positive contributions to the economy. Compared to the fourth quarter of 2022, exports of goods and services showed an overall increase of 0.4% after adjustments.

In Q1 2023, the adjusted gross value added experienced a net increase of 0.9% compared to the previous quarter. The construction industry reported the most significant growth at 6.1%, which can be attributed to unusually mild weather conditions during this period.

GDP down year on year

The GDP experienced a decline of 0.2% in Q1 2023 when adjusted for price changes compared to the same period in 2022. However, when considering both price and calendar adjustments, the decrease was larger at -0.5% due to the presence of one additional working day compared to the previous year.

EU peers

In the European Union, Lithuania has also entered a technical recession, experiencing a decline of 3.0% in Q1 2023 and 0.5% in Q4 2022.

Among the 20 EU member states for which Q1 2023 data is available, five reported a contraction in their GDP.

Luxembourg, although yet to report its Q1 results, had the biggest contraction across the EU in Q4 2022, with a decline of 3.8%.