The German economy entered recession in the first quarter of 2023, as confirmed by the Federal Statistical Office (Destatis), which has revised downward the Gross Domestic Product (GDP) data for the first three months of the year, to -0.3%. Initially a stagnation was expected, but this data has meant the third consecutive quarter of decline in activity, after -0.5% in the fourth quarter of 2022. “After GDP growth entered negative territory at the end of 2022 , the German economy has now recorded two consecutive negative quarters,” confirmed Ruth Brand, President of the Federal Statistical Office.
In this way, the German economy has registered the worst performance among the large economies of the euro area, since Spain and Italy grew by 0.5 and France did so by 0.2%, while the average for the euro area was 0.1% On the other hand, the GDP of the United States in the first quarter grew by 0.3%. In its analysis, Destatis highlights the drag on the German economy from the strong price rises, which was especially reflected in household final consumption spending, which fell by 1.2% in the first quarter of 2023.
This greater reluctance of households to buy was manifested in lower spending on food and beverages, clothing, and footwear in the first quarter of 2023 compared to the previous one. In addition, German families bought fewer new cars, which is probably due, in part, to the discontinuation of subsidies for plug-in hybrids and the reduction of subsidies for electric vehicles earlier this year.
For its part, the Government’s final consumption spending also decreased considerably between January and March, with a contraction of 4.9% compared to the previous quarter. Instead, the Office highlights that investment increased from the fourth quarter of 2022, with an increase in gross fixed capital formation in construction (+3.9%), partly due to good weather during the first quarter of 2023 , while gross fixed capital formation in machinery and equipment was also notably higher at the beginning of the year (+3.2%).
Likewise, positive contributions from foreign trade were also registered, since, compared to the fourth quarter of 2022, exports of goods and services increased by 0.4%. By contrast, imports fell 0.9%, due, in part, to lower imports of mineral fuels, such as crude oil and petroleum products, and chemicals and chemical products.
The labor market remains
On the other hand, Destatis indicated that the economic performance in the first three months of 2023 was achieved with approximately 45.6 million people employed in Germany, which implies an increase of 446,000 workers (+1%) compared to the previous year. On average, the number of hours worked per employee was similar to that of the first quarter of 2022 (-0.1%), while the volume of work in the economy as a whole increased by 0.9% in the same period. Global labor productivity (GDP adjusted for prices per hour worked by employed persons) fell by 1% compared to the same quarter of the previous year and labor productivity per employed person was 1.1% lower in year-on-year terms.
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