Germany Narrowly Avoids Recession as Pandemic, Ukraine Invasion Weigh Heavily on Economy

Germany has narrowly avoided a recession in the first quarter as its economy comes under increasing pressure from the Ukraine invasion and the lingering impact of the pandemic.

The war and the effects of pandemic restrictions are weighing on German economic activity.

However, Europe’s biggest economy still managed to eke out a 0.2 percent pace of growth.

Germany’s gross domestic product grew 0.2 percent quarter-over-quarter in Q1 of 2022, in line with analysts’ estimates, Data released Wednesday by Germany’s Federal Statistics Office shows.

“War in Ukraine and the continuing COVID-19 pandemic have intensified existing distortions, including interruptions in supply chains and rising prices,” Georg Thiel, president of the Federal Statistical Office, said in a statement.

“Despite difficult framework conditions in the global economy, the German economy started 2022 with a slight growth,” he added.

Thiel’s remarks about global macro problems echo the findings of a new World Economic Forum (WEF) report, in which leading economists warned the world is facing a complex combination of challenges, including high inflation and greater food insecurity that could lead to social unrest in some countries.

Inflation is expected to remain high through 2022 as supply chain disruption is expected to intensify.

The world is now on track for the worst food crisis in recent history, according to the World Economic Forum’s Chief Economists Outlook report.

Meanwhile, the 0.2 percent pace of quarterly GDP growth means that Germany has managed to dodge a recession, typically defined as two consecutive quarters of quarter-over-quarter contraction.

The country’s economic output fell by 0.3 percent at the end of 2021.

Recent German industrial production data showed output falling 3.9 percent in March.

The sharp drop, nearly four times as high as analysts expected, prompted some economists to predict that Europe’s biggest economy was due for a nosedive into recession.

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“If you are in search of bad news, just have a look at German macro data,” ING’s Global Head of Macro, Carsten Brzeski, wrote in a note.

“Industrial production just wrapped up an entire batch of expectedly weak March data.”

Brzeski added that the data points to a looming recession in Europe’s biggest economy.

On Wednesday, following the release of Germany’s GDP figures, Brzeski reacted by sticking to his earlier recessionary forecast.

“The inventory build-up and weak consumption in the first quarter, as well as very weak consumer confidence, clearly dent the optimism currently sent by traditional leading indicators,” he wrote.

“We stick to our base case scenario of a mild contraction in the German economy in the second quarter.”

Other analysts have made calls for an imminent German recession.

Andrew Kenningham from Capital Economics said in a note that the weak industrial output figures likely mark “the start of a deep manufacturing downturn which is likely to drag the entire economy into recession.”

Other German economic data points to economic weakness, including a contraction in private consumption for the second quarter in a row and consumer confidence readings remaining close to all-time lows.

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By Nick R. Hamilton

Nick has a broad background in journalism, business, and technology. He covers news on cryptocurrency, traditional assets, and economic markets.

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