Germany Enters Recession Despite Being World’s 4th Largest Economy

Europe’s largest economy Germany was confirmed to be in a recession on Thursday. Germany is also the fourth largest economy in the world. The euro dropped on Thursday because of it, while the dollar hit a two-month peak.

Escalating signs of economic malaise in Europe sent the euro to multi-month lows against the dollar.

In Germany, the economy contracted slightly in the first quarter and thereby was in recession after negative growth in the fourth quarter of 2022.

Germany has slipped into recession as last year’s energy price shock takes its toll on consumer spending.

Output in Europe’s largest economy dropped 0.3% in the first three months of the year, following a 0.5% contraction at the end of 2022, official data showed Thursday. A recession is defined as two consecutive quarters of declining output.

The German economy is expected to shrink by 0.1% in 2023, according to the latest forecast from the International Monetary Fund.

In a sign that Germany’s recession may prove short-lived, timelier survey data showed earlier this week that business activity in the country expanded again in May, despite a sharp downturn in manufacturing.

German Chancellor Olaf Scholz described the outlook for the economy as “very good,” pointing to measures his government has taken in recent months to expand renewable energy production and attract foreign workers.

But a report by five German economic institutes in April 2022 said the country’s GDP would contract by 2.2% in 2023 if its supply of Russian natural gas was suddenly shut off.