First recession recorded since the beginning of the pandemic Germanydefying those who hoped the eurozone’s largest economy could offset the burden of soaring energy prices.

In particular, according to the country’s national statistical agency, in the first three months of 2023, the economy contracted by 0.3%, while in the last quarter of 2022 it contracted by 0.5%. It is noted that two consecutive quarters of contraction represent a technical recession. Initially, the German economy was expected to avoid recession by remaining stagnant in the first quarter of the year.

This is, of course, the result of heavy pressure on the German economy after the start of the war in Ukraine and the decision of the Europeans to cut ties with Moscow. It is worth noting that the German Chancellor, Olaf Soltzhinted in January that the country would avoid a recession.

Household spending was a key factor in the result: Germans spent much less in the first quarter of the year, with total spending falling 1.2%. “Household reluctance to buy was evident in many areas. Households spent less on food and drink, clothes, shoes and furniture,” the German statistical office said in a statement. They also bought fewer EVs due to the German government cutting incentives to buy.

At the same time, there was a decline in government spending while investment increased, helped in part by the construction sector, aided by more favorable weather conditions during this period.

The decisive factor in the German economy’s contraction of 0.3% in the first quarter of the year was a significant reduction in household spending by 1.2%.

“In addition, Germany slipped into recession late last year as the energy price shock hit household spending,” said Klaus Wistensen, chief eurozone economist at Pantheon Macroeconomics. He added that the chances of a contraction in the coming quarters are slim.

The image of the largest companies in the country testifies to the deterioration of the consumer climate in Germany. For example, stocks of clothing company Zalando rose in the first quarter due to lower consumption. Accordingly, according to the automotive industry association VDA, car orders fell by about a third over the same period.

The manufacturing sector, which is key to the economy, is also experiencing problems. In fact, the deterioration is so great that some doubt the possibility of recovery by the end of the year. Meanwhile, industry sentiment is also affecting business prospects. It is significant that the index of expectations of the German economic institute Ifo in May for the first time in eight months fell.

While some agencies expect the economy to stagnate this year, a report from Germany’s central bank suggests it could pick up slightly this quarter. This forecast is due to smoothing supply chain problems and lower energy prices, which favors the industrial sector.

“The size of Germany’s upcoming GDP revision means eurozone growth is also likely to be revised down in the first quarter. Other things being equal, this will most likely lead to stagnation in the region’s economy in early 2023, but if any big changes occur, it could … plunge the region into a technical recession, ”Bloomberg economists say.