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Germany dodges recession but low growth disappoints

AFP
AFP - [email protected]
Germany dodges recession but low growth disappoints
People shopping in Düsseldorf city centre. Photo: picture alliance/dpa | Henning Kaiser

Germany narrowly dodged a recession in the first quarter but growth stagnated contrary to expectations for a slight rebound, preliminary data showed Friday, as the energy crisis weighed on Europe's top economy.

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Gross domestic product came in flat from January to March, federal statistics agency Destatis said. If the economy had shrunk again -- after a 0.5 percent contraction in the final quarter of 2022 -- it would have entered a "technical recession".

The industrial powerhouse, which had long been heavily reliant on Russian energy, was hit hard after Moscow's invasion of Ukraine sent gas prices surging.

Analysts and the government predicted for months that surging prices, particularly of energy, would push the economy into a sharp winter recession.

But expectations changed in recent weeks as Germany's vast industrial sector rebounded, on the back of falling energy prices and the reopening of China, a key market for German manufacturers, after long Covid lockdowns.

READ ALSO: Why Germany could narrowly avoid a recession in 2023

While the economy appears to have avoided the worst, the first quarter reading was below expectations from analysts surveyed by financial data firm FactSet for an expansion of 0.2 percent.

There is also a possibility that the reading could be revised down when the final figures are published in a few weeks.

'Dry spell'

LBBW bank economist Jens-Oliver Niklasch said the figures highlighted the economy was still experiencing a "dry spell".

Despite recent figures from the industrial sector having boosted optimism, "now we see that progress is slow," he added.

Nevertheless, Germany still appears to have weathered the energy crisis triggered by Moscow's drastic reduction of energy exports to Europe better than feared.

In response to the upheaval, Berlin rolled out a barrage of relief measures to cushion businesses and consumers, including a cap on energy prices, and scrambled to diversify its supplies.

After peaking at 8.8 percent in October, inflation has been falling steadily. It stood at 7.4 percent in March.

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The first official inflation estimate for April is due to be released later Friday.

On Wednesday, the German government lifted its economic growth forecast for the whole of 2023 to an expansion of 0.4 percent, up from 0.2 percent a few months ago.

Recent surveys have also been upbeat, with the Ifo institute's key business confidence barometer rising for a seventh straight month in April.

But not everyone is so optimistic, with the IMF predicting earlier this month the German economy would shrink by 0.1 percent this year.

German markets, like those elsewhere, were also rattled by the collapse last month of three US regional lenders and the takeover of Credit Suisse by rival UBS, with shares of Deutsche Bank plunging at one point.

READ ALSO: EXPLAINED: How America's banking crisis could hit consumers in Germany

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Fears of a broader financial crisis have eased for now.

But analysts warn of risks that could dent Germany's economic fortunes later in the year -- not least the European Central Bank's aggressive monetary tightening to bring down inflation.

The ECB has lifted interest rates by 3.5 percentage points since July last year, and another hike is expected when it meets on Thursday.

ING economist Carsten Brzeski listed dangers for the German economy ranging from the impact of rate hikes feeding through, to a slowdown in the United States that could hit German exporters.

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