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German economy in recession after high prices take toll, revised figures reveal
The latest figures show Germany has entered a recession, after high prices took a bigger toll on the country’s economy than originally anticipated.
Data from the Federal Statistical Office showed Europe’s largest economy contracted by 0.3% in the first quarter of 2023, compared with the previous three months, when it shrank by 0.5%. The technical definition of a recession is two consecutive quarters of contraction.
A previous estimate suggested Germany had narrowly avoided recession with 0% growth in the first quarter.
The national statistics office stated on Thursday that while private sector investment and construction grew at the start of the year, this was offset in part by a drop-off in consumer spending as higher prices forced households to rein in spending.
Overall, combined household spending dropped 1.2% in the first quarter, with shoppers less willing to spend more on food, clothes, and furniture. Government spending also dipped by 4.9% compared with the previous quarter.
The war in Ukraine has unsettled both businesses and consumers, both holding back on investing and buying respectively, which has severely impacted demand. Interest rate rises by the European Central Bank have so far had very little influence on reducing inflation, which stands at 7% across the eurozone.
Considerably higher heating costs, despite government subsidies, mean German consumers were holding back on spending on other areas of the economy.
The Ifo Index – Germany’s most prominent leading monthly indicator, showed a continuing weak backdrop for businesses. In May it sank again for the first time in half a year. All sectors apart from services were observed to be on the decline.
The state-owned investment and development bank KfW said this week it expected German GDP to shrink by 0.3% overall this year. It added that two-thirds of the most recent downturn may be caused by more work days being lost in 2023 to public holidays than the previous year.
Oil prices rise as Saudi Arabia pledges output cuts
Oil prices have risen after Saudi Arabia said it would make cuts of a million barrels per day (bpd) in July.
Other members of Opec+, a group of oil-producing countries, also agreed to continued cuts in production in an attempt to shore up flagging prices. Opec+ accounts for around 40% of the world's crude oil and its decisions can have a major impact on oil prices.
In Asia trade on Monday, Brent crude oil rose by as much as 2.4% before settling at around $77 a barrel. Opec+ said production targets would drop by a further 1.4 million bpd from 2024.
The seven hour-long meeting on Sunday of the oil-rich nations came against a backdrop of constantly falling energy prices. Oil prices soared when Russia invaded Ukraine last year, but are now back at levels seen before the conflict began in a welcome return for all.
In October last year Opec+, a formulation which refers to the Organization of Petroleum Exporting Countries and its allies, agreed to cut production by two million bpd, equating to 2% of global demand.
In April this year the group agreed to further cuts, which were due to last to the end of this year. Oil producers are grappling with falling prices and high market volatility amid the Russian invasion of Ukraine.
The West has accused Opec of manipulating prices and undermining the global economy through high energy costs. It has also accused the group of siding with Russia despite sanctions over the invasion of Ukraine.
In response, Opec insiders have said the West's monetary policy over the last decade has driven inflation and forced oil-producing nations to act to maintain the value of their main export.
