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Germany's GDP falls for second straight quarter, raising fears of a prolonged recession

Germany in Recession

Germany's economy shrank by 0.3% in the first quarter of 2023, marking the country's second contraction in as many months. This follows a 0.5% contraction in the last three months of 2022, as Germany battled an energy crisis unleashed by Russia's invasion of Ukraine.

A recession is commonly defined as two successive quarters of contraction. The negative growth figure for this quarter was revised down by the federal statistics agency from an initial estimate of zero percent.

Dwindling energy supplies from warring Russia have pushed prices up, stoking inflation. Household consumption dropped to 1.2% quarter-on-quarter after price, seasonal and calendar adjustments.



The recession was less severe than some early predictions made at the start of the conflict, but mild winter weather and the easing of supply chain problems following the Covid pandemic were "not enough to get the economy out of the recessionary danger zone", Carsten Brzeski, head of macro at the ING bank, told AFP.

By contrast, investment was up in the first three months of the year, following a weak second half of 2022. There were also positive contributions from trade.

Germany's last recession came as the coronavirus pandemic swept through Europe at the start of 2020, prompting governments to effectively shut down large swathes of the economy.

The latest data is a further blow to German Chancellor Olaf Scholz, who has been under pressure to do more to help the country's economy cope with the fallout from the war in Ukraine.

Scholz has so far resisted calls to increase government spending, arguing that this would only add to inflationary pressures. However, he has said that he is open to other measures, such as tax cuts and subsidies for businesses.

It remains to be seen whether these measures will be enough to prevent Germany from slipping into a deeper recession. However, the latest data suggests that the country is facing a tough economic challenge in the months ahead.

Impact of the Recession

The recession will have a significant impact on Germany's economy. Unemployment is expected to rise, and businesses are likely to cut back on investment. This will lead to a slowdown in economic growth, which will have a knock-on effect on jobs and incomes.

The recession will also make it more difficult for the German government to finance its social programs. This could lead to cuts in welfare benefits and other social programs.

The recession will also have a negative impact on Germany's international standing. The country is seen as a major economic power, and its recession will be seen as a sign of weakness. This could lead to a loss of confidence in the German economy, which could make it more difficult for the country to attract foreign investment.

Government Response

The German government has said that it is committed to helping the economy recover from the recession. The government has announced a number of measures, including tax cuts, subsidies for businesses, and investment in infrastructure.

However, it remains to be seen whether these measures will be enough to prevent the recession from deepening. The government will need to take further action if it wants to avoid a prolonged economic downturn.

Outlook

The outlook for the German economy is uncertain. The recession is expected to continue in the second quarter of 2023, and it is possible that the economy could contract further in the third quarter.

However, there are some signs that the economy may be starting to stabilize. The German government has taken some steps to help the economy, and there are signs that the global economy is starting to recover.

If the economy does start to stabilize, it is possible that the recession will end in the fourth quarter of 2023. However, it is also possible that the recession could last longer, or that the economy could experience a double-dip recession.

The outlook for the German economy will depend on a number of factors, including the outcome of the war in Ukraine, the pace of economic recovery in the global economy, and the effectiveness of the government's measures to help the economy.

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