German economy narrowly escapes recession

Germany narrowly avoided slipping into recession in the first quarter, official data showed on Friday.

According to Destatis, the Federal Statistical Office, GDP was unchanged in the first quarter compared with the final three months of 2022, when it fell by a downwardly revised 0.5%. Consensus had been for a 0.2% fall in the first quarter.

Year-on-year, GDP dipped 0.1% on a price and calendar-adjusted basis, because there was one more working day than in the same period a year earlier, Destatis noted.

Expenditure by both households and governments fell in the first quarter, but positive contributions came from capital formation and exports.

The flash update was published alongside unemployment data for the Eurozone’s largest economy. According to the Federal Employment Agency, the unemployment rate was 5.6% in April, unchanged on March’s 20-month high, in line with market expectations.

The number of unemployed people rose by more than expected, however, up 24,000 to 2.567m. Analysts had been looking for a rise of around 10,000 claims.

Claus Vistesen, chief Eurozone economist at Pantheon Macroeconomics, said: "The German economy remained stuck in the mud at the start of 2023, only barely avoiding recession, in contrast to the very strong hard data, especially in manufacturing and construction, at the start of the year.

"Overall, these data suggest that our forecast for a 0.2% increase in Eurozone GDP is too high.

"In the labour market, meanwhile, the national unemployment rate will soon tick higher, judging by the rising trend in unemployment claims: the increase in April marks a continuation of a rising trend since the beginning of the year, consistent with a sharp slowdown in GDP growth towards the end of last year."