German Economy Slipped Into Recession in First Quarter
Why it matters: Exports, a major engine of the economy, are declining.
Germany is Europe’s largest economy, according to World News Agency, and Germany’s health compares favorably with the 20-member eurozone, the world’s third-largest economy in terms of output and purchasing power, after the United States and China. It directly affects the health of the European Union as a whole. Bank.
Initial forecasts had expected the German economy to remain flat in the first quarter, but Thursday’s update showed that industrial production fell 3.4% in March from the previous month as exports and the auto industry fell. was fully incorporated with the additional data of .
Germany’s economic growth relies heavily on exports, especially to China, where Volkswagen has long been the dominant automaker. But Volkswagen reported a 15% drop in sales in China in the first three months of the year, as Chinese electric vehicles have recently become more popular among Asian customers.
Overall, exports fell 5.2% in March from the previous month, according to government data.
Energy prices, which have reached record levels, prompted Germany’s industry to scramble to buy more liquefied natural gas (LNG), which is more expensive than Russian gas supplied by pipeline. forced to reduce production.
Background: Inflation and high interest rates are not helping.
Germany’s inflation rate remained high at 7.6% in April, and the European Central Bank suggested it may continue to raise rates to bring inflation closer to its 2% target.
At the same time, unions are fighting employers for higher wages to keep up with rising prices. Wage growth in the first three months of 2023 rose by 6.3% as settlements were reached in key sectors, including industrial and service workers.
Yet economists emphasized how hard the price spiral has hit Germany’s lowest-income people.
“It will take at least five more years for the purchasing power of wages, and thus the standard of living, of people with low wages and low incomes to return to pre-crisis levels in many cases,” said Marcel Flattscher, director of the German Institute. Stated. economic research.
Future Developments: We do not expect a strong recovery.
The European Commission expects Germany to grow just 0.2% this year, making it the weakest EU member state.
Some economists also agree with this.
“Looking ahead, we don’t see gross domestic product (GDP) continuing to decline in the next few quarters, but we also don’t see a strong recovery,” said Klaus Bistesen, chief eurozone economist at Pantheon Macroeconomics. rice field.