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By Carsten Brzeski

It’s a recession in spite of everything. The second estimate of the German GDP development within the first quarter confirmed that the financial system contracted by 0.3% Quarter-on-Quarter in the beginning of the yr. In accordance with the primary estimate, the financial system had nonetheless stagnated. At the least GDP development within the fourth quarter of 2022 lastly remained unrevised and got here in at -0.5% QoQ. On the yr, GDP development within the first quarter was down by 0.5%.

Each personal and public consumption have been sturdy drags on financial exercise, whereas the gentle winter climate helped the development sector stage a short lived rebound, returning as a development driver. Because of weaker imports, marginal export development led to a constructive development contribution of web exports.

We all the time knew what you probably did final summer season….

It took a few statistical revisions, however on the finish of the day, the German financial system truly did this winter what we had feared already since final summer season: it fell right into a technical recession. It’s not the worst-case situation of a extreme recession however a drop of just about 1% from final summer season. The nice and cozy winter climate, a rebound in industrial exercise, helped by the Chinese language reopening and an easing of provide chain frictions, weren’t sufficient to get the financial system out of the recessionary hazard zone. Personal consumption continued to undergo from still-high retail power costs.

Trying past the primary quarter, the optimism in the beginning of the yr appears to have given method to extra of a way of actuality. A drop in buying energy, thinned-out industrial order books in addition to the affect of essentially the most aggressive financial coverage tightening in a long time, and the anticipated slowdown of the US financial system all argue in favour of weak financial exercise. On high of those cyclical elements, the continued warfare in Ukraine, demographic change and the present power transition will structurally weigh on the German financial system within the coming years.

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