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Economic downturn in Germany: the economy is stagnating

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Status: 07/29/2022 11:10 a.m.

The German economy stopped growing in the spring. According to the Federal Statistical Office, gross domestic product stagnated between April and June. Is a recession imminent?

The growth of the German economy came to a complete halt during the spring months. In the second quarter, gross domestic product (GDP) was unchanged from the first three months of this year. The Federal Statistical Office announced this today in a first estimate.

The economy was mainly supported by private and public consumer spending. However, external factors have dampened economic growth. “The difficult global economic conditions with the ongoing corona pandemic, disrupted supply chains, rising prices and the war in Ukraine are clearly reflected in economic development,” said the statisticians from Wiesbaden. Economists expected a minimum increase of 0.1%.

The first trimester went better

At the start of the year, however, the economy was doing better than expected: statisticians corrected the rise in GDP for the first quarter to 0.8% against 0.2% initially mentioned.

Compared to the same period last year, gross domestic product increased by 1.5%. Last year, the national economy felt the effects of the third corona wave much more clearly.

The Bundesbank is pessimistic

The International Monetary Fund (IMF) recently lowered its forecast for German economic growth for the whole of 2022. For Germany, the fund expects an increase of 1.2%. The IMF has thus revised its May forecasts significantly downwards by 0.8%.

The Bundesbank was also pessimistic for the current year. “Looking ahead to today, GDP growth in the current quarter is expected to be somewhat weaker than projected in the Bundesbank’s baseline scenario for June 2022,” the July monthly report said. of the central bank.

The war in Ukraine is exacerbating the problems that were already troubling the German economy. Rising energy prices and persistent supply bottlenecks are weighing on the industry. At the same time, the highest inflation in decades is slowing down private consumption, which is an important pillar of the German economy.

High energy prices are a burden

The ifo business climate, for which around 9,000 companies assess their current business situation and their expectations for the next six months, fell in July to its lowest level in two good years. “Germany is on the verge of recession,” said ifo President Clemens Fuest. “High energy prices and the threat of gas shortages are weighing on the economy.”

Commerzbank’s chief economist, Jörg Krämer, assumes that the German economy is already in recession. The gravity of the situation in the end is mainly in the hands of the leader of the Kremlin, Vladimir Putin. “If the gas supply were to stop completely, a deep recession would be inevitable.” This means that the German economy would contract over a longer period.

Eurozone countries are progressing overall

Despite record inflation and the war in Ukraine, the eurozone economy grew stronger than expected in the spring. The gross domestic product of countries with a common currency between April and June increased by 0.7% compared to the same quarter of the previous year, as announced by the European statistical office Eurostat.

The eurozone economy is burdened by high inflation, which is further fueled by the war in Ukraine and is clouding the business climate. Eurozone inflation peaked at 8.9% in July. The European Commission only expects economic growth of 2.6% for the year as a whole. EU Commissioner Paolo Gentiloni recently warned that if Russia completely shuts off the gas tap to the EU, there would be a risk of recession in the second half of 2022.

The Spanish economy is robust

Unlike the German economy, the Spanish economy is proving robust. There, gross domestic product rose by 1.1%, as the statistics office INE announced today.

In Spain, a high level of investment and a strong increase in consumption ensured the recovery despite high inflation. Growth clearly exceeded the expectations of the Spanish National Bank, which expected an increase of 0.4%.

Strong foreign trade in France

France also recorded modest growth over the same period, exceeding expectations. The economy grew 0.5% in the second quarter. During the first three months of the year, France recorded a slight drop of 0.2%. The French Central Bank and the Statistics Office then assumed growth of between 0.2 and 0.25% for the second quarter.

According to French statisticians, the best development is now largely due to good foreign trade figures. In addition, the 0.2% decline in consumer spending was significantly lower than fears. INSEE now forecasts growth of 2.5% for the whole of 2022.

The US economy is shrinking

The United States, on the other hand, has already entered a “technical recession”. Economic output fell for the second consecutive quarter. During the period from April to the end of June, the annual gross domestic product fell by 0.9%. The economy had already fallen 1.6% in the first quarter.

How is the German economy doing?

Dorothee Holz, HR, 29.7.2022 11:48


Source www.tagesschau.de

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