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Germany’s economy is in recession and shrank by 0.3% in the first quarter.

The German economy has been severely impacted by inflation, as consumers are spending less on goods like food and clothing.

According to figures released on Thursday, Germany’s economy shrank slightly in the first quarter of 2023 compared to the prior three months, officially entering a technical recession.

According to an early assessment, Germany’s gross domestic product (GPD) would have just avoided entering a recession in the first quarter, stagnating at zero growth.

The data revealed what?

After accounting for pricing and seasonal impacts, GDP decreased by 0.3% during the quarter

The German economy has already seen two straight quarters of negative GDP growth since GDP growth entered negative territory at the end of 2022, according to Ruth Brand, president of Destatis.

The data for January to March come after a 0.5% decline in the fourth quarter of 2022. Two consecutive quarters of contraction is the conventional definition of a recession.

Continued harm from inflation

the office reported on the German economy throughout the quarter. After accounting for price and seasonal changes, household consumption decreased by 1.2% from one quarter to the next.

Compared to the prior quarter, private households spent less on furniture, clothing, shoes, food, and beverages.

Additionally, they purchased less brand-new vehicles, presumably as a result of the expiration of government subsidies at the end of 2022.

The first three months of the year saw an increase in investment following a sluggish second half of 2022, which was a glimmer of hope.

less grim than expected

Germany, which relies heavily on Russian energy supplies, was left especially vulnerable as a result of the Russian invasion of Ukraine in February 2022.

The worst-case scenarios, such as a gas crisis, which would have devastated the economy, did not materialize in Germany due to a mild winter.

The COVID-19 epidemic in the beginning of 2020 forced governments to essentially shut down entire areas of the economy, which led to Germany’s most recent recession.

High inflation has eroded the purchasing power of consumers, which has decreased demand in the economy. Despite a recent easing in the increasing pricing trend, April’s annual inflation rate of 7.2% was still quite high.