Germany, the largest economy in Europe and the fourth largest in the world, has entered a recession.
This happened right as Fitch Ratings put the United States on “negative watch” for a potential downgrade because of the unpredictability surrounding the country’s continuing debt ceiling battle.
According to figures made public by Germany’s statistics office on Thursday, the European nation’s gross domestic product (GDP) decreased by 0.3% in the first quarter of the year, marking the second consecutive quarter in which contraction would be observed.
Technical recessions can start when there has been negative growth for two consecutive quarters.
According to the statistics office, building and investment in the private sector increased at the start of 2023. However, when prices increased and people made spending cuts, the decline in consumer spending hampered the expansion.
In Germany, household expenditure decreased by 1.2% while government spending decreased by 4.9% over the previous quarter.
As food costs increased, a sizeable share of family purchasing power decreased.
Germany, which depended on Russia for natural gas, was particularly exposed following Russia’s annexation of Ukraine.
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Investment in machinery and equipment climbed by 3.2% while investment in building increased by 3.9% when compared to the last quarter of 2022.The statistics agency stated that “the persistence of high price increases continued to be a burden on the German economy at the start of the year.”
Recession in the eurozone might affect the direction of policy at a time when the European Central Bank is prepared to hike interest rates once again.
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