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German economy stagnates in second quarter

July 28, 2023

Economists set a gloomier outlook for the coming months, as official data showed Germany's GDP stayed flat in the three-month period between April and June. The inflation rate in July was slightly less than that of June.

A person with a shopping cart at an aisle at a German grocery store packed with cheese and meat
Germany is the Eurozone's largest economy but has suffered under pressures of high energy pricesImage: Frank Hoermann/SVEN SIMON/IMAGO

The German economy stagnated in the second quarter as compared to first quarter readings, the Federal Statistical Office (Destatis) said on Thursday.

The Gross Domestic Product (GDP) stagnated at zero growth in the second quarter of 2023, between April and June, first estimate data showed.

Germany's economy, Europe's largest, contracted by 0.1% in the first quarter of 2023 and by 0.4% in the last quarter of 2022, according to revised figures from Destatis.

The second quarter figure was worse than predicted, as analysts expected a 0.3% rebound.

Inflation slows, food costs stay high

Meanwhile, German inflation slowed to 6.2% in July from 6.4% in June, data from Destatis showed.

Inflation was "resuming its downward trend after a brief pause" in June, when inflation rose to a four-month high, said Fritzi Kohler-Geib, the chief economist at German Development Bank (KfW).

But "a significant slowdown in the annual rise in consumer prices is not expected until September" she added.

While a sharp increase in energy prices has slightly eased, food costs keep climbing, increasing by 11% year-on-year, according to Destatis.

The European Central Bank (ECB)   announced on Thursday for the ninth consecutive time a hike in the key interest rate in the eurozone by a quarter percentage point in a bid to bring down inflation.

Germany's economy under pressure 

Germany entered a technical, or short-term, recession in the first quarter of 2023, after the country recorded a 0.5% contraction in the last quarter of 2022, preliminary data earlier in the year showed.

A recession is commonly defined as two successive quarters of contraction.

Germany's economy has been under pressure in the wake of Russia's full-scale invasion of Ukraine and the subsequent rise in energy prices.

Data from the previous quarter showed that consumers' spending was a lot less as high energy prices weighed on people's minds. 

Recession: Calamity or economic cleanser?

Signs of a weak second half of 2023

Germany "seems to be stuck in the twilight zone between stagnation and recession," Carsten Brzeski, the global head of macro at ING Germany, told the AFP news agency.

"For the third quarter, the overall signs are pointing to contraction again," Jens-Oliver Niklasch, an economist at Landesbank Baden-Wuerttemberg, was quoted as saying by the agency.

"In all probability, a negative result for GDP growth will be recorded for 2023 as a whole," he added.

rm/fb (dpa, AFP)  

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