The German economy has entered a recession, with a 0.3% decline in gross domestic product (GDP) in the first quarter of 2023 compared to the previous quarter. This follows a 0.5% decline in the fourth quarter of 2022.
The recession is attributed to a decline in household consumption, which fell by 1.2% quarter-on-quarter, and a significant decrease in government spending by 4.9%. The warm winter weather, industrial activity rebound, and easing of supply chain frictions were insufficient to prevent the economic downturn.
Despite the recession, there were some positive contributions from trade. Exports rose by 0.4%, while imports fell by 0.9%. Investment also increased in the first three months of the year, with investment in machinery and equipment rising by 3.2% and investment in construction increasing by 3.9%.
The outlook for the second half of the year remains uncertain. A drop in purchasing power, thinned-out industrial order books, aggressive monetary policy tightening, and the expected slowdown of the U.S. economy suggest continued weak economic activity. However, the Bundesbank predicts modest growth in the second quarter due to a rebound in industry.