German economy dodges recession
GDP sees growth in the first quarter
BERLIN: The German economy grew slightly in the first quarter from the previous one, data showed yesterday, with higher investments offset by the twin impacts of war in Ukraine and Covid-19 that experts predicted would weigh more heavily in the three months to June.
Europe’s largest economy grew an adjusted 0.2% quarter on quarter and 3.8% on the year, the Federal Statistics Office said. A Reuters poll had forecast 0.2% and 3.7%, respectively.
The reading meant that Germany skirted a recession, often defined as two quarters in a row of quarter-on-quarter contraction, after gross domestic product (GDP) contracted by 0.3% at the end of 2021.
While household and government spending remained mostly at the same level as in the previous quarter and exports were down at the start of the year, investments grew.
Construction investments, boosted by mild weather, were up 4.6% from the previous quarter, despite price increases, and machinery and equipment investments rose 2.5%.
German business morale rose unexpectedly in May as its economy showed resilience, according to an Ifo institute survey published this week that found no observable signs of a recession.
However, there is no upswing in sight either, and Sebastian Dullien, director of the Macroeconomic Policy Institute (IMK), predicted the effect of the war and pandemic-linked restrictions in China — Germany’s biggest trading partner last year, according to official data — would be much greater in the second quarter.
ING economist Carsten Brzeski said he was sticking with his baseline scenario of a slight GDP contraction in the second quarter after yesterday’s reading.
“The build-up of inventories and weak consumption in the first quarter, as well as very weak consumer confidence, clearly dampen the optimism that traditional leading indicators are currently conveying,” he said.
The government forecasts economic growth of 2.2% in 2022.
In a separate report yesteday, a consumer sentiment index by the GfK institute inched up slightly heading into June from an all-time low in May, with household spending burdened by inflation.
The institure’s forward-looking barometer rose to -26 points for June, up from -26.6 the previous month, an historic low for the indicator.
The improvement in consumer sentiment was “marginal”, GfK consumer expert Rolf Buerkl said.
“Despite the relaxation of coronavirus-related restrictions, the Ukraine war and inflation above all are weighing on the mood of consumers,” he said.
The outbreak of the war has driven increases in the cost of energy, food and raw materials for which Ukraine and Russia are key suppliers.
As a result, inflation in Germany rose to a multi-year high of 7.4% in April.
The GfK survey of some 2,000 people also found that Germans were “moderately” more positive about the prospects for the economy, with the indicator rising by 7.1 points to -9.3 points in May.
Despite the improvement, the figure was almost 50 points below the surveyed value at the same time last year when German coronavirus restrictions were loosened.
Income expectations rose slightly to minus 23.7 points in May, up by 7.6 points from the previous month.
“The explosive increase in the cost of living as a result of the war kept the indicator at an extremely low level,” the GfK said.