Europe's largest economy is idling. Germany entered a technical recession in the first quarter of 2023, with a second consecutive decline in its gross domestic product (GDP), weighed down by its industry, which is suffering from a decline in demand, against a backdrop of inflation and rising interest rates.

The GDP of Europe's largest economy fell by 0.3% between January and March over one quarter, after a decline of 0.5% between October and December, in data adjusted for seasonal and calendar variables, Destatis said in a press release.

Over one year, the indicator fell by 0.5%.

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The country is therefore entering a technical recession, after two quarters of decline in a row. This is a first since the coronavirus pandemic, which caused a drop in GDP in the first and second quarters of 2020.

Fall in industrial orders

The German economy seemed to be more resilient than expected at the beginning of the year, with the effects of the energy crisis contained thanks to massive aid, increased use of liquefied gas and the beginning of a decline in gas prices.

But inflation, which remains very high at over 7%, has finally squeezed private and public consumption spending considerably, which has weighed down this dynamic.

And the policy rate hikes led by the European Central Bank (ECB) to combat it are beginning to have an effect on activity, by squeezing demand.

As a result, after several months of increases, production in the manufacturing sector, which is central to the German economic model, fell again in March, falling by 3.4% year-on-year.

Industrial orders also fell sharply in March, by 10.7%, the most since the trough of the pandemic. And exports, essential for this sector, fell sharply to 5.2%.

Despite this slowdown, the German government expects a gradual recovery in activity over the course of the year, with growth of 0.4% in 2023.

With Reuters and AFP

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