Consumer spending decline in Europe’s largest economy leads Germany into recession

Germany has fallen into a recession due to a significant energy price increase that impacted consumer spending. Official data released on Thursday revealed that the production in the country’s largest economy dropped by 0.3% in the first quarter of 2023. This followed a 0.5% contraction at the end of 2022. The Federal Statistical Office revised its previous prediction of zero quarter-on-quarter growth in gross domestic product (GDP). A recession is defined as two consecutive quarters of production decline.

The agency explains that “a sustained high price hike continued to weigh on the German economy at the beginning of the year.” The reduction in consumer spending was clear in particular in household expenditure, which declined by 1.2% in the first quarter of 2023,” said Klaus Wistesen, chief eurozone economist at Pantheon Macroeconomics. The spending shrank due to an “energy price shock.”

However, timely PMI survey data published earlier this week show that German business activity improved again in May, despite a severe downturn in manufacturing. This suggests that the recession may be brief. This is a developing story that will be updated as further details become available.

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