Germany expected to dodge recession with weak Q1 growth
GERMANY releases growth data on Friday expected to show Europe’s biggest economy expanded slightly in the first quarter and dodged a recession, as falling energy prices and China’s reopening boosted manufacturers.
The industrial powerhouse, which had long been heavily reliant on Russian energy, was hit hard after Moscow’s invasion of Ukraine sent inflation and gas prices surging.
After initially faring better than expected, the economy shrank a shock 0.4 per cent in the final three months of last year, leaving it on the cusp of a downturn.
If Friday’s preliminary official data, to be released at 10.00 am (0800 GMT), show GDP contracted for a second straight quarter, the economy will have entered a “technical recession”.
But a sharp drop in energy prices, combined with the reopening of China’s economy after painful Covid shutdowns, have driven a rebound in industrial production.
In a monthly report released this week, the central bank said gross domestic product probably expanded in the first quarter, changing an earlier forecast of a slight contraction.
“Industry recovered more strongly than expected,” it said. “Lower energy prices are directly supporting energy-intensive industries, supply bottlenecks eased... and demand picked up noticeably again.”
Analysts surveyed by financial data firm FactSet are forecasting first-quarter growth of 0.2 per cent.
The improving picture is the latest indication that Germany has weathered the energy crisis triggered by Moscow’s drastic reduction of energy exports to Europe better than feared.
In response to the upheaval, Berlin rolled out a barrage of relief measures to cushion businesses and consumers, including a cap on energy prices, and scrambled to diversify its supplies.
After peaking at 8.8 per cent in October, inflation has been falling steadily. It stood at 7.4 per cent in March.
The first official inflation estimate for April is due to be released later Friday. ‘Flirting with recession’
On Wednesday, the German government lifted its economic growth forecast for the whole of 2023 to an expansion of 0.4 per cent, up from 0.2 per cent a few months ago.
Recent surveys have also been upbeat, with the Ifo institute’s key business confidence barometer rising for a seventh straight month in April.
But not everyone is so optimistic, with the IMF predicting earlier this month the German economy would shrink by 0.1 per cent this year.
German markets, like those elsewhere, were also rattled by the collapse last month of three US regional lenders and the takeover of Credit Suisse by rival UBS, with shares of Deutsche Bank plunging at one point.
Fears of a broader financial crisis have eased for now.
But analysts warn of risks that could dent Germany’s economic fortunes later in the year – not least the European Central Bank’s aggressive monetary tightening to bring down inflation.
The ECB has lifted interest rates by 3.5 percentage points since July last year, and another hike is expected when it meets on Thursday.
ING economist Carsten Brzeski listed dangers for the German economy ranging from the impact of rate hikes feeding through, to a slowdown in the US that could hit German exporters.
“The German economy will continue its flirtation with recession,” he said. AFP
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