Europe's leading economy is in recession

The German economy has fallen into recession as last year's energy price shock hit consumer spending.

Official data released by the German Federal Statistical Office (Destatis) on May 25 showed that output in Europe's largest economy fell 0.3% in the first quarter of this year, after falling 0.5% at the end of 2022.

Destatis downgraded its previous estimate of zero gross domestic product (GDP) growth from the previous quarter. A recession is defined as two consecutive quarters of falling output.

“The persistently high price increases continued to weigh on the German economy at the beginning of the year,” Destatis said. “This was particularly reflected in household final consumption expenditure, which fell by 1.2% in the first quarter of 2023.”

“The German economy actually fell into recession at the end of last year as the energy price shock weighed on consumer spending,” Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said in a note to clients.

He added that it was unlikely that German GDP would continue to decline in the coming quarters, “but we also do not see a strong recovery.”

However, the economic downturn in Germany may be short-lived as Purchasing Managers' Index (PMI) survey data showed earlier this week that business activity in Europe's powerhouse economy expanded again in May, despite a sharp decline in the manufacturing sector.

The latest economic developments come amid high inflation and high interest rates across the region. The European Central Bank (ECB) is expected to raise interest rates again at its next meeting on June 15. The ECB has raised rates by 375 basis points since July last year.

German Central Bank Governor Joachim Nagel said earlier this week that the ECB has “several” interest rate hikes coming .

Minh Duc (According to CNBC, CNN)

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