Germany in 'technical recession' after UK

Recently, the German central bank Deutsche Bundesbank released a monthly report showing that the German economy may have contracted slightly in the first quarter of this year. Combined with the contraction of the German economy in the fourth quarter of last year, the German economy, which is already facing multiple challenges, fell into a "technical recession".

Gross domestic product fell 0.3 per cent in the first three months of this year, according to the Federal statistics office, after falling 0.4 per cent in the fourth quarter. Such two consecutive quarters of economic contraction meet the definition of a "technical recession." In addition, the German Federal Statistics Office also noted that Germany's GDP fell last year for the first time since the 2020 pandemic, indicating that the German economy is facing serious challenges.

There are many reasons for the downturn, including high inflation that has dampened consumer spending and put a damper on the recovery. The Bundesbank believes that the current weak trend in the German economy will continue, mainly due to falling foreign demand, lower orders for German industry, higher financing costs, high nominal wage growth and strikes in key industries.

The author analyzes the following main reasons leading to the German economy falling into technical recession.

First, the instability of the global economic environment has had an impact on the German economy. As one of the largest economies in Europe, Germany is closely linked to the rest of the global economy. Factors such as slowing global economic growth and rising trade protectionism have led to an impact on German export markets, which in turn has affected domestic industrial production and economic growth.

Second, the German economy faces a host of internal challenges. Germany's high dependence on exports over the past few decades has led to a relative lack of domestic demand. In addition, Germany's aging population is becoming increasingly serious, the imbalance between supply and demand in the labor market, and enterprises are facing problems such as difficult and expensive recruitment. At the same time, Germany has been relatively slow to innovate and digitalise, unable to keep pace with the transformation of the global economy.

Finally, policy factors have also had an impact on the German economy. For example, the German government has responded to the economic downturn with austerity policies that have reduced public spending and investment, further depressing growth. In addition, Germany also faces a series of challenges in terms of energy transition and environmental protection policies, requiring a large investment and time to achieve sustainable development.

Economists believe that the German economy has not yet shown signs of improvement, indicating that the German economic outlook continues to be pessimistic. Weak demand, which almost all sectors of the German economy complain about, is also a hindrance to recovery.

On a more concrete basis, capital investment fell by 1.9%, while private consumption and government spending rose by 0.2% and 0.3%, respectively. For Germany, the decline in capital investment may reflect firms' uncertainty about future economic prospects, leading them to delay or reduce investment. At the same time, growth in private consumption and government spending showed some resilience in the economy, which could help moderate the impact of the overall recession.

Taken together, the current technical recession in the German economy needs to be closely watched, especially its duration and depth, as well as the possible response measures taken by the government and the central bank, which will have an important impact on the economic outlook in Germany and the rest of Europe. The German government and businesses need to take proactive measures to strengthen innovation and digital transformation, boost domestic demand and promote sustainable economic development.