Germany slides into recession as high prices hit home

Revised figures show 0.3 per cent contraction in first quarter of 2023

German consumer spending was down during a winter of high prices. Bloomberg

Germany's economy has fallen into recession, it was revealed on Thursday.

The economy shrank by 0.3 per cent between January and March as high prices held back consumer spending.

It followed a 0.5 per cent contraction in the last quarter of 2022.

Two consecutive quarters of negative growth qualify as a recession.

The latest figures were revised down after initial hopes that Europe's biggest economy had escaped a winter recession.

The public was urged to cut back on energy use after Russia's invasion of Ukraine led to a squeeze in Europe's gas supplies.

Inflation reached double-digit figures for the first time since German reunification in 1990. It currently stands at 7.6 per cent.

Germany's statistics office said household spending was down 1.2 per cent in the first quarter.

It said people spent less on food, drinks, clothing, footwear, furniture and new cars.

“The persistence of high price increases continued to be a burden on the German economy … the reluctance of households to buy was apparent in a variety of areas,” it said.

Manufacturing in energy-intensive fields such as the German chemicals industry was also down.

There was growth in the construction sector, aided by relatively warm winter weather.

But Carsten Brzeski, an analyst at ING, said the mild temperatures “were not enough to get the economy out of the recessionary danger zone”.

He said slow industrial orders, tighter monetary policy and a possible US slowdown suggested a period of weak economic performance.

“On top of these cyclical factors, the ongoing war in Ukraine, demographic change and the current energy transition will structurally weigh on the German economy in the coming years,” he said.

The recession is Germany's first since the Covid-19 pandemic led to a 9.5 per cent contraction during the spring 2020 lockdown.

The latest figures will increase pressure on German Economy Minister Robert Habeck, whose standing has already dropped amid a row over clean energy and a nepotism scandal in his ministry.

Green party minister Mr Habeck had credited the centre-left government's "decisive action" with averting a worst-case winter meltdown.

"It didn't even take two years until Robert Habeck, the minister for the planned economy, led Germany into a recession," said Stefan Mueller, a conservative leader in parliament.