Persistently high inflation is dampening people's willingness to spend and burdening companies. Europe's largest economy felt the effects at the beginning of the year. Germany is narrowly avoiding a recession.
Due to falling consumer spending, the German economy narrowly avoided the long-feared winter recession in the first quarter. The gross domestic product (GDP) stagnated from January to March compared to the previous quarter, as the Federal Statistical Office announced on Friday.
Economists surveyed by the Reuters news agency had expected growth of 0.2 percent, after it was still in the fourth quarter a minus of revised 0.5 (previously: -0.4) percent. With two negative quarters in a row, there is talk of a recession, which has now just been avoided.
A better performance prevented the falling consumer spending of consumers, who are not in the mood for shopping due to the loss of purchasing power due to high inflation. Government consumer spending also decreased. “On the other hand, positive impetus came from investments and exports,” the statisticians explained. They intend to announce details in May.
Interest rate hikes are likely to have a negative impact
“This means that a technical recession in the winter half-year is off the table for the time being,” said Commerzbank chief economist Jörg Krämer on the performance in the first quarter. “However, I advise caution with a view to the second half of the year.” Many companies have already processed a good part of the orders that were left behind during the Corona crisis. In addition, the European Central Bank (ECB) has raised its interest rates sharply. “In the past, such interest rate increases in Germany were always followed by recessions,” said Krämer.
Chief economist Alexander Krüger from Hauck Aufhäuser Lampe Privatbank is therefore not expecting a thoroughgoing upswing. “In the weak growth environment, the loss of prosperity that has already been suffered will therefore persist,” said Krüger.
The German Institute for Economic Research (DIW) assumes that the economy will gain momentum at least in the current spring quarter. Above all, the increasing industrial production – also in the energy-intensive branches of the economy – should contribute to growth.
How many rate hikes does ECB boss Christine Lagarde have in mind?
Falling real wages, high inflation and rising interest rates
“But that shouldn't lead to euphoria,” said the co-head of the DIW economic team, Geraldine Dany-Knedlik. It is true that the recently lower energy prices and stronger foreign demand have strengthened production. “However, the high inflation and the resulting low real wages are weighing on the disposable income of private households,” said the expert.
Ralf Runde from Helaba expects further interest rate hikes from the ECB: “Since France, Italy and Spain today published good growth figures on balance, the ECB should feel encouraged not to declare the interest rate cycle over yet.” He expects interest rates to rise by 0.25 percent next week. “In addition, a further tightening should be taken into account, especially since the inflation rates are still far too high and in some cases even rose in April.”
Robert Habeck, on the other hand, spread optimism a few days ago. The Federal Minister of Economics expects growth of 0.4 percent this year. In 2024, gross domestic product is then expected to increase by 1.6 percent. “After the Corona crisis, the German economy is proving to be adaptable and resilient, even in the energy crisis,” said the Green politician at the presentation of the federal government's spring projection.
tko/hb (rtr, dpa)