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Germany Enters Recession Phase After Being Hit By Inflation

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According to data, continuous inflation forced Germany to enter recession phase in the first three months of 2023.

According to researchers, when Russia stopped supplying gas to Germany following the invasion of Ukraine last February, the greatest economy in Europe massively suffered. According to the statistics agency, between January and March, the economy shrank by 0.3%. Before this, in the final three months of 2022, the economy contracted to 0.5%.

When a nation’s economy contracts for two consecutive quarters or three months, it is said to be in a recession. According to Andreas Scheuerle, an analyst at DekaBank, “under the weight of immense inflation, the German consumer has fallen to his knees, dragging the entire economy down with him.”

Inflation in Germany was 7.2% in April, higher than the average for the euro area but lower than the 8.7% in the UK.

Household expenditure on commodities like food, clothing, and furnishings has been impacted by higher pricing. Indicating how increasing energy prices are affecting firms, industrial orders are also weaker.

“The persistence of high price increases continued to be a burden on the German economy at the start of the year,” the federal statistics office Destatis said in a statement.

The agency initially predicted no expansion for the first quarter of this year, implying that Germany would avoid a recession. The updated data revealed, however, that family spending was 1.2% less than what it was in the prior quarter.

After government grants for electric and hybrid vehicles were reduced, auto sales also decreased. Government spending decreased by 4.9%.

Given Germany’s significant reliance on Russian energy, the recession was not much impactful than some had anticipated. Higher energy prices were lessened by a mild winter and the resumption of China’s economy.

Analysts stated that while private sector investment and exports increased, it was insufficient to lift Germany out of the “danger zone” for recession.

LBBW bank analyst Jens-Oliver Niklasch, said, “The early indicators suggest that things will continue to be similarly weak in the second quarter [of 2023].”

However, the Bundesbank, the central bank of Germany, anticipates a slight expansion of the economy in the quarter of April to June, with an improvement in business offset by sluggish consumer spending.

After raising its prediction for the UK from minus 0.3% to growth of 0.4%, the IMF now believes that Germany will be the world’s weakest advanced economy this year, contracting by 0.1%.

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