Europe’s Largest Economy Enters Recession

Germany’s gross domestic product shrank 0.3 percent in the first quarter, the Federal Statistical Office announced on Thursday. Since economic output had already fallen by 0.5 percent in the fourth quarter of 2022, Germany has officially slipped into a recession.

The persistence of high price increases continued to be a burden on the German economy at the start of the year. This was particularly reflected in household final consumption expenditure, which was down 1.2 percent in the first quarter of 2023.
—Federal Statistical Office

• By comparison, economic output in the European Union as a whole rose 0.2 percent; the United States, by 0.3 percent. Thus the postwar economic miracle child is lagging behind the trend.

Causes: Inflation has drastically reduced private consumer spending, largely due to rising energy prices that skyrocketed after Russia’s invasion of Ukraine. Furthermore, Germany’s many regulations make it hard for new businesses to take root, and rising costs have caused others to leave.

• It is a “considerable setback,” said Bert Rürup, president of the Handelsblatt Research Institute, and one that, according to the Federal Statistical Office, hardly any experts had expected.

Signs of worse to come: When war broke out in Ukraine last year, many feared that Germany’s economy would suffer severely—but the worst-case scenario was prevented as sanctions against Russia were weakened and delayed. However, more crises are looming, and the battered German economy needs to fear them.

Tensions are rising in Asia with China, Germany’s most important trading partner, threatening to invade Taiwan. Tensions are rising in the Middle East with Iran pursuing nuclear weapons and threatening to block sea routes. But the most imminent danger to Germany’s overall economy may be triggered by the U.S., where a large-scale banking crisis could trigger default on its debt.

Germany can’t afford to have a weak economy and continue to play a global role. Germans are becoming increasingly frustrated with their government not facing this reality. As Trumpet editor in chief Gerald Flurry explained in “America’s Banking Crisis Will Unite Europe,” the economic turmoil we are currently seeing is setting the scene for dramatic change in Germany’s and Europe’s leadership.