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EDITOR IN CHIEF- ABDULLAH BIN SALIM AL SHUEILI

German economy stagnates, teeters on brink of recession

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FRANKFURT: Germany is teetering on the brink of recession after official data Friday showed growth stagnating in the first quarter despite expectations for a slight rebound, as the energy crisis weighed on Europe's top economy.


Gross domestic product came in flat from January to March, according to preliminary figures from federal statistics agency Destatis.


If the economy had recorded a contraction again -- after shrinking 0.5 per cent in the final quarter of 2022 -- it would have entered a "technical recession", defined as two consecutive quarters of negative growth.


However, the flat reading could still be revised to a contraction when final figures are released.


The industrial powerhouse, which had long been heavily reliant on Russian energy, was hit hard after Moscow's invasion of Ukraine sent gas prices surging.


Analysts and the government predicted for months that soaring inflation, particularly sharp rises in the cost of energy, would push the economy into a winter downturn.


But expectations changed in recent weeks as Germany's vast industrial sector rebounded on the back of falling energy prices and the reopening of the key Chinese market after long Covid lockdowns.


While the economy appears to have avoided the worst, the first quarter reading was below expectations from analysts surveyed by financial data firm FactSet for an expansion of 0.2 per cent.


According to Destatis, exports and investments helped to support GDP but household and government consumption declined.


The GDP data "illustrates that the industrial renaissance of the last two months has not been enough to get the economy out of recessionary territory", said ING economist Carsten Brzeski. "The overall direction for the German economy is clear: this year will bring a long flirtation with stagnation."


Despite the downbeat assessment of analysts, Germany still appears to have weathered the energy crisis triggered by Moscow's drastic reduction of gas 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 eased to 7.2 per cent in April year-on-year from 7.4 per cent in March, Destatis said Friday -- although some analysts were surprised it had not slowed further.


Consumer price rises weakened "only slightly" and were displaying "some stubbornness", said KfW chief economist Fritzi Koehler-Geib.


It is important for the European Central Bank, which has been aggressively hiking interest rates to tame soaring prices, to continue "to signal resolve", she added.


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 International Monetary Fund predicting earlier this month that 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 ECB's rate hikes.


The central bank has lifted interest rates by 3.5 percentage points since July last year, and another hike is expected when it meets on Thursday. - AFP


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