Europe’s largest economy—Germany—has slipped into recession, according to multiple reports from around the continent.
The latest figures from Destatis show that the German economy contracted 0.5% in Q4 2022 and has now contracted a further 0.3% in Q1 2023.
It had been predicted that GDP would remain at 0% for the quarter, averting a recession but remaining stagnant. Now, fears over the fallout from the war against Ukraine and a fall in industrial production have been realised.
Writing on his blog, Carsten Brzeski, chief economist at banking giant ING, tried to allay fears.
He wrote: “Usually it is not a steep growth path, interrupted only by a short dent. A ‘technical recession’ occurs above all in a generally weak growth environment, where it does not take a major crisis to push GDP growth below zero here and there. This is particularly evident shortly after the turn of the millennium: from April 2001 onwards, there were 19 consecutive quarters with growth rates of less than 1% – and so it is not surprising that three of the seven recessions of the last quarter century occurred in these less than five years alone.”
He added: “But even after one zero and three negative quarters in 2001 and 2002, the economy as a whole had shrunk by less than 1% – unpleasant, but not dramatic. The financial and economic crisis of the late 2000s was of a different calibre – the economy shrank more and more for four quarters in a row. The bottom line was a decline of around 7.5% in economic output from April 2008 to March 2009.”
However, it is not all roses, says Brzeski.
He wrote: “On the other hand, the largest quarterly loss in the statistics seemed to be quickly forgotten at first: The slump in the second quarter of 2020 at the beginning of the Corona pandemic had been almost double-digit, but the catch-up effect in the following summer was almost as great. But subsequently, the events remained volatile; slumps due to winter pandemic waves alternated with solid growth.”
He went on: “And just when it was thought that the worst was behind us after the pandemic was largely over, the war in Ukraine caused energy and other price shocks and renewed disruptions to supply chains. How do you think economists will look back on the current recession in a quarter of a century?”
Elsewhere on the continent, ING has said this week that a recession in other countries is still on the cards.
Writing in its ‘Snaps’ section about France, the firm said that Q2 2023 has gotten off to a poor start for the nation, with household consumption falling for three months in a row.
It wrote: “The prospect of a recovery later in the year seems to be fading. This has led us to revise our growth outlook slightly downwards. We are now expecting GDP growth of 0.6% in 2023 and 0.7% in 2024, with the risks still tilted to the downside. Although France escaped recession last winter, today’s indicators are a reminder that a recession in the coming months cannot be ruled out.”
Meanwhile, Politico has warned that if Germany has a cold, the rest of the continent should be thinking about facemasks.
It wrote: “While a mild winter meant that Germany, which was heavily reliant on Russian energy imports, managed to escape the worst-case scenarios of gas shortages that would have forced complete factory shutdowns, prospects don’t look good.”
It added: “Even ahead of the downward revision, Germany was expected to prove a drag on the region’s overall economic prospects. The European Commission’s spring economic forecasts put German growth at 0.2% this year and 1.4% next year, compared with a eurozone average of 1.1% and 1.6%, respectively.”
