After a weak start to the year, the German economy narrowly avoided a recession. As the Federal Statistical Office announced on Friday, economic output neither grew nor shrunk in the first quarter. Inflation remained high at 7.2 percent in April and continued to dampen people’s willingness to spend. According to the Federal Employment Agency, the labor market is also lacking momentum due to the moderate economic development.
industry is recovering
According to an initial estimate by the Federal Statistical Office, gross domestic product (GDP) stagnated in the first quarter of 2023 compared to the previous quarter. According to the statistics office, positive impetus came from investments and exports at the beginning of the year.
According to updated data, economic output fell by 0.5 percent at the end of 2022. If the gross domestic product falls two quarters in a row, an economy is in a so-called technical recession. This did not happen, mainly thanks to the mild winter and well-stocked gas storage facilities.
In view of the adverse economic environment, major geopolitical uncertainties and only weak impetus from the global economy, the German economy has proven to be quite robust.
Jan Christopher Scherer, Head of Germany forecast at DIW Berlin
“Industry recovered more strongly than expected,” writes the Deutsche Bundesbank in its current monthly report. Energy-intensive production benefited from falling energy prices again. In addition, supply bottlenecks for preliminary products continued to dissolve. Foreign demand also picked up noticeably.
“In the current year we expect a significant economic recovery,” DIW economist Jan-Christopher Scherer told the Tagesspiegel. Economics Minister Robert Habeck (Greens) also expects GDP growth of 0.4 percent for 2023 as a whole.
Inflation weighs on households
Private consumption, on the other hand, declined due to persistently high inflation as a pillar of the economy. Inflation in Germany continued to weaken in April. At 7.2 percent, consumer prices remained at a high level compared to the same month last year. The Federal Statistical Office announced this on Friday based on initial calculations. In March, inflation was still 7.4 percent.
“Private consumption should only make a noticeable contribution to growth in the second half of the year,” believes Jan-Christopher Scherer. Only then would the continuing fall in consumer prices put less of a strain on the disposable income of private households.
Higher inflation rates reduce the purchasing power of consumers. Food in particular became increasingly expensive. Current figures from the inflation monitor of the Hans Böckler Foundation show that the high level of inflation – despite the decline – continues to limit the consumption opportunities of low-income households in particular.
labor market stable
Due to the gloomy economic development, the number of unemployed in Germany fell only slightly in April by 8,000 to 2.586 million people. “The spring revival on the labor market will remain weak in April,” said Andrea Nahles, Chairwoman of the Federal Employment Agency (BA), on Friday in Nuremberg. The unemployment rate stagnated at 5.7 percent; in April last year it was still 5.0 percent.
The federal agency attributed the increase compared to last year in part to the admission of refugees from Ukraine. “Even without taking Ukrainian refugees into account, unemployment would have increased compared to the previous year, but less so,” the authority said.
Overall, however, the job market is in stable condition. Nahles is particularly worried about the number of long-term unemployed. 885,000 people in Germany have been without a job for a year or longer. 59 percent of them even more than two years. Although the highs of the corona pandemic have now been undercut again, the level is still significantly higher than before the outbreak of the virus. (with dpa)
