Germany enters recession following economic 'collapse'May 25, 2023
Germany enters recession following economic ‘collapse’ – and experts predict the situation is only going to get WORSE for Europe’s largest economy… as IMF sharply upgrades UK growth forecast
- German economy has suffered an unexpected dip and has fallen into a recession
- New figures come as blow to German govt which had predicted economic uptick
The German economy suffered an unexpected dip in the first quarter of the year, formally putting the country into a recession, new figures show.
Germany’s gross domestic product (GDP) fell by 0.3 per cent in the period from January to March, data released on Thursday by the Federal Statistical Office shows.
The figures come as a major blow to Germany’s government, which just weeks ago boldly doubled its growth forecast for this year after a feared winter energy crunch failed to materialise.
The government predicted that GDP will grow by 0.4 per cent – up from a 0.2 per cent expansion predicted in late January – a forecast that will now likely need to be revised downwards.
It comes as the International Monetary Fund was forced to admit it had miscalculated in its prognosis of the British economy, which is now set to avoid recession.
The foundation now expects the UK’s economy to grow by 0.4 per cent in 2023, despite declaring just last month it would contract by 0.3 per cent.
German Cancellor Olaf Scholz speaks during the celebrations of the 25th anniversary of the European Central Bank (ECB) in Frankfurt, Germany, 24 May 2023. Germany’s economy has entered a recession despite positive predictions from German government
Managing Director of the International Monetary Fund (IMF) Kristalina Georgieva attends Weekly Cabinet Meeting at 10 Downing Street in London, United Kingdom on May 23, 2023 after the IMF revised its forecast on the UK’s economy
British Chancellor of the Exchequer Jeremy Hunt
German economists said high inflation reduced consumer spending, with prices in April 7.2 per cent higher than a year ago.
The Bundesbank remains positive, projecting that Germans can expect their economy to enjoy a mini upswing by the end of the year.
READ MORE: Inflation FINALLY drops out of double-figures
But Thomas Gitzel, chief economist at VP Bank, told German outlet Bild that the second half of the year looked bleak.
‘There will no longer be any compensation for the expected continued weak private consumption and the ailing construction industry,’ he said.
‘The shrinking course of the German economy will presumably continue in the second half of the year.’
Employment in the country rose in the first quarter and inflation has eased, but higher interest rates will keep weighing on spending and investment, said Franziska Palmas, senior Europe economist for Capital Economics.
‘Germany has experienced a technical recession and has been by far the worst performer among major eurozone economies over the past two quarters,’ Palmas said, predicting further weakness ahead.
Chief economist at Commerzbank, Jörg Krämer, drew a similar conclusion.
‘Unfortunately, there is no fundamental improvement in sight because all important leading indicators in the manufacturing sector are now falling,’ he declared.
The cloudy predictions for the German economy come just days after the IMF delivered a major U-turn on its forecast for the UK economy, saying it expected growth this year just one month after predicting a contraction.
Britain’s economy is expected to expand 0.4 per cent in 2023, the IMF said in its latest outlook document, ripping up its previous forecast in April for a 0.3 per cent contraction.
But Britain’s annual inflation rate is still the highest among countries in the Group of Seven (G7) rich economies featuring also Canada, France, Germany, Italy, Japan and the United States.
‘The IMF said yesterday we’ve acted decisively to tackle inflation but although it is positive that it is now in single digits, food prices are still rising too fast,’ finance minister Jeremy Hunt said following Wednesday’s data.
Group of Seven (G7) finance ministers and central bank governors attend a group photo session ahead of their meeting in Niigata, Japan, on Friday, May 12, 2023. Britain has the highest annual inflation of any G7 country
Britain’s Prime Minister Rishi Sunak departs for his weekly Prime Minister’s Questions (PMQs) session at Parliament in London, Britain, 24 May 2023
UK food price inflation stood at 19 per cent in April, around the highest level in more than 45 years.
‘With inflation proving stickier than’ BoE expectations, ‘it now seems all but certain that the Bank will raise interest rates from 4.50 per cent to 4.75 per cent in June’, forecast Capital Economics chief UK economist Paul Dales.
The BoE earlier this month lifted its key interest rate to the highest level since the 2008 financial crisis, noting inflation remained stubbornly high.
It hiked the rate by a quarter-point to 4.5 per cent – its 12th increase in a row, fuelling a cost-of-living crisis across Britain.
UK Prime Minister Rishi Sunak’s Conservative government recently suffered a drubbing in local elections, as voters gave their verdict over rampant living costs despite state efforts to partly subsidise energy bills.
Over the past year, the nation has been plagued by strikes, staged mainly by railway and postal staff but also by teachers and health workers, as high inflation erodes the value of wages.
Policymakers around the world are battling elevated inflation caused largely by runaway energy bills in the wake of last year’s invasion of Ukraine by major oil and gas producer Russia.
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