The German economy shrank by 0.1 percent in the second quarter of the year compared to the previous quarter due to decreasing investments.
The German Federal Statistical Office (Destatis) has announced the final growth data for the German economy covering the second quarter of the year.
Accordingly, seasonally and calendar adjusted gross domestic product (GDP) in Germany decreased by 0.1 percent in the second quarter of the year compared to the previous quarter. Thus, Destatis confirmed the 0.1 percent contraction it announced with preliminary data on July 30.
The German economy, which is the largest in Europe and the third largest in the world, shrank by 0.4 percent in the last quarter of last year and expanded by 0.2 percent in the first quarter of the year.
“After a slight increase in the previous quarter, the German economy slowed down again in the spring,” said Destatis President Ruth Brand.
EQUIPMENT INVESTMENTS DROPPED BY 4.1 PERCENT
The country’s GDP, adjusted for seasonal and calendar effects, did not show growth compared to the second quarter of last year.
On a quarterly basis, equipment investments, particularly machinery, devices and vehicles, made a negative contribution to GDP. In the second quarter, equipment investments fell by 4.1 percent compared to the previous quarter, while public expenditures increased by 1 percent.
A 2 percent decrease was observed in construction investments and a 0.2 percent decrease in exports of goods and services.
In the same period, household consumption expenditures increased by 0.1 percent.
German economy faces risk of relapse
It was noteworthy that the German economy, which has difficulty growing, showed weaker development in the second quarter compared to other European countries such as Spain and France.
While economic growth in France, the Eurozone’s second largest economy, exceeded expectations with 0.3 percent in the second quarter of the year, the Spanish economy grew by 0.8 percent in the same period.
Meanwhile, the German central bank expects the German economy to grow only slightly in the current third quarter.
The Institute for Economic Research, one of Germany’s leading economic think tanks, assesses that even a further decline in GDP is possible in the third quarter.
If the German economy shrinks in the third quarter, it will be in technical recession.
While a technical recession is defined as “two consecutive quarters of GDP contraction,” Germany experienced its first recession since 2009 in 2020, the first year of the pandemic, after 10 years of good economic growth.
The German government expects the economy to grow by 0.3 percent this year.
ECONOMY STUCK IN RECESSION
ING Global Macro Research Head and Germany Chief Economist Carsten Brzeski said in his assessment of the issue, “Weak household consumption and the decline in the construction sector dragged the German economy into contraction again in the second quarter. Although the economic outlook is not very bright, it is too early to lose hope.”
Brzeski stated that the positive surprise of German GDP growth in the first quarter and the improvement in confidence indicators in the economy gave hope that the pessimism of the last few years was over and that the debate about whether Germany was the “sick man of Europe” could be put to rest. “However, the reality is that the GDP growth in the first quarter was due to mild winter weather and the downward revision of the fourth-quarter GDP. Therefore, it was not a situation that we could describe as a sustainable and healthy growth story.”
Brzeski pointed out that hopes for a consumer-led recovery in the German economy in the second half of the year were dealt another blow today as consumer confidence fell. “The reality is that the German economy is currently learning the hard way what it means to be in the middle of cyclical headwinds and structural changes. The economy is stuck in a recession,” he said.
