The German economy shrank slightly in the first quarter of 2023 from the previous three months, according to data released by the statistics office on Thursday, thus entering a recession, Reuters reported.

Gross domestic product fell 0.3 percent in the quarter after adjusting for price and calendar effects, the data showed. The contraction in the German economy in the first three months followed a 0.5% drop in the fourth quarter of 2022.

A recession is usually defined as two consecutive quarters of contraction. A preliminary estimate showed that GDP stagnated in the first quarter and that Germany had managed to avoid recession.

“The German consumer fell to his knees, dragging the entire economy with him”

Inflation continued to be a problem for the German economy at the beginning of the year, the statistical office reported. This was reflected in household consumption, which fell 1.2% quarter-on-quarter after price, seasonal and calendar adjustments. Government spending also fell significantly, by 4.9% quarter-on-quarter.

“Under the burden of massive inflation, the German consumer fell to its knees, dragging the whole economy down with it,” said Andreas Scheuerle, an analyst at DekaBank.

In contrast, investment increased in the first three months of the year after weak development in the second half of 2022. There was also a positive contribution of trade to the development of the German economy in the first three months of 2023.

“Warm winter weather, a pick-up in industrial activity fueled by China’s recovery and easing of supply chain tensions have not been enough to lift the economy out of recession danger zone,” said Carsten Brzeski, ING’s global head of macroeconomics. department, Karsten Brzeski.

“Looking beyond the first quarter, the optimism at the start of the year appears to have given way to a greater awareness of reality,” said ING’s Brzeski.

Declining purchasing power, shrinking industrial order portfolios, aggressive tightening of monetary policy, and an expected slowdown in the US economy all point to weak economic activity.

The “economic engine” of the EU is idling

Germany’s economy has shown resilience over the past year thanks to a firm policy response and a mild winter, but GDP growth from the EU’s “economic engine” will remain modest for the foreseeable future, according to a report published in mid-month by the International Monetary Fund. showed

The tightening of financial conditions and the shock of energy prices have begun to affect forecasts for the near future, warns the IMF in its report on Germany. The International Financial Institution forecasts almost zero German GDP growth in 2023 before a gradual recovery of 1-2% between 2024 and 2026.

In the long run, Germany’s average GDP growth will fall below 1% due to an aging population and a lack of significant growth in productivity and the labor force.

Although core inflation has eased from record levels last year, the IMF believes that “the priority in the near term is to sustain disinflation with moderate fiscal tightening in 2023,” the IMF said.