German Economy News: Germany plunges into recession as consumers spend less

Europe’s largest economy is under recession as consumer spending has substantially decreased in the last six months. The German economy shrunk by 0.5% in the last three quarters. Prior to this, between January to March, its economy shrunk by 0.3% according to the official data.

Earlier, World Bank also predicted that Germany would be the least-growing country among the most advanced economies. 

A recession is a period of high inflation and low demand. The overall economic activities are reduced during this period. It is generally identified as the fall in GDP in two successive quarters.

Germany GDP since first quarter of 2021

By Federal Statistical Office of Germany

Why has Germany gone into recession

According to the authorities, persistent higher inflation and low demand have resulted in a recession. Due to high prices of energy, demand, and consumption have declined. Industries and manufacturing activities are declining. As a result, household final consumption declined by 1.2% in the first quarter.

“After GDP growth entered negative territory at the end of 2022, the German economy has now recorded two consecutive negative quarters,” says Ruth Brand, President of the Federal Statistical Office.

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Among the factors leading to the recession, Energy prices have a big role to play in the current situation. Energy prices have gone up post-Russia-Ukraine war. Germany was a key consumer of cheap Russian oil. However, once the supply stopped, the energy prices rose significantly. 

The direct impact of higher energy prices was reflected in household consumption. Households have spent less on food, clothing, footwear, etc, compared to the previous quarter. The sale of electric and hybrid cars dropped as government grants were reduced.

In contrast, other European neighbors of Germany are better placed now and have less chance of going into recession. France, Belgium now has low energy prices compared to Germany and it is fuelling their economic activities.

Experts believe that Germany is expected to be in recession for some time. Energy prices are going to be the key to pushing industrial activities in the coming month.