Germany was left meeting the technical definition of a recession after the Destatis statistics agency revised its estimate of first-quarter gross domestic production to a 0.3% quarterly contraction, from a previous estimate of growth.
“It took a couple of statistical revisions, but at the end of the day, the German economy actually did this winter what we had feared already since last summer: it fell into a technical recession. It’s not the worst-case scenario of a severe recession but a drop of almost 1% from last summer,” said Carsten Brzeski, global head of macro at ING.
Salomon Fiedler, an economist at Berenberg Bank, said the real surprise wasn’t so much that Germany was in a recession, but that the statistics agency initially didn’t think so after the heavy hit to disposable incomes from sky-high energy and food prices.
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There also was a drop in car purchases after the discontinuation of grants for plug-in hybrids and reduction of grants for electric vehicles, he noted. But from the summer, wages and income will likely outpace inflation, raising German purchasing power.
Christian Schulz, deputy chief European economist at Citi, said private consumption fell by 1.2% after a 1.7% deterioration in the fourth quarter. He said there are hopeful signs, as consumer confidence rose in May, driven by a drop in savings intentions and higher income expectations.
“Our hopes for a growth acceleration in 2023 rest on a rebound in consumer spending,” he said.
The euro EURUSD, -0.26% did weaken a bit after the German data was published, as the shared currency fetched $ 1.0734, down from $ 1.0752 on Wednesday.