SUMMARY

• The German economy experienced a technical recession in the first quarter of this year due to a decrease in household spending.
• The recent Russian invasion of Ukraine and the consequential severing of ties between European leaders and Moscow have exerted pressure on Europe's largest economy.
• Despite the downturn, experts predict a stabilisation of the German GDP in the coming quarters, although a strong recovery is not anticipated.

In the dawn of this year, Germany found itself caught in the stranglehold of a technical recession, as a result of a conspicuous decrease in household expenditure.

As Thursday's report from the German Statistics Office showed, a slight dip of -0.3% was recorded in the GDP for the first quarter of this year, a downward revision from the initial neutral projection. This follows closely on the heels of a 0.5% shrinkage in the last quarter of the previous year, signifying a technical recession as defined by two successive quarters of negative growth.

Europe's most dominant economy is not without its trials, particularly in light of Russia's unexpected invasion of Ukraine. This incursion led to the severance of European leaders' ties with Moscow, imposing significant pressure on Germany.

Further investigation into the statistics office's data disclosed a discernible decline in the spending habits of German households in the first quarter. The final consumption expenditure witnessed a 1.2% drop as consumers demonstrated a noticeable restraint in spending their earnings on clothing, furniture, vehicles, and other commodities.

Experts including Claus Vistesen, Chief Euro Zone Economist at Pantheon Macroeconomics, have commented on this state of affairs. While Vistesen acknowledges the recession Germany found itself in towards the end of the previous year, he also opines that a continued decline in the German GDP is unlikely. However, he does not foresee a strong recovery. This outlook is echoed by Franziska Palmas of Capital Economics, who projects a continuation of this weakness.

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