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Economy: Recession in Germany: Less consumption, less performance

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Economy: Recession in Germany: Less consumption, less performance

The shopping carts are currently rather less lavishly filled. That puts pressure on the economy.

Photo: dpa/Sven Hoppe

According to the underconsumption theory, crises occur because people consume too little. This is exactly the case at the moment: high inflation is putting pressure on purchasing power, which is why demand and economic output are falling. The gross domestic product (GDP) fell by 0.3 percent in the first three months, as the Federal Statistical Office announced on Thursday based on revised data. In a first quick estimate, stagnation was still assumed. With the new figures, Germany is now – technically speaking – in a recession. The economy had already shrunk by 0.5 percent at the end of last year.

For a long time it was assumed that the German economy would come through the energy price crisis relatively unscathed. Initial concerns that there would be a shortage of natural gas proved unfounded. A drop in economic output of 0.3 or 0.5 percent is also not dramatic. In the course of the corona crisis, for example, GDP collapsed by almost ten percent in the second quarter of 2020. The economy is still not going smoothly. The EU Commission estimates that economic output will only increase by 0.2 percent this year, while forecasting growth of 1.1 percent for the entire euro zone.

According to the official statisticians, private consumer spending fell by 1.2 percent at the beginning of the year compared to the same period last year, adjusted for price, seasonal and calendar effects. People spent less money on food and drinks in particular. But the state also saved. His consumer spending even fell by 5.4 percent. The statisticians gave the main cause as the cessation of state-financed corona measures such as the implementation of corona vaccinations and tests. These had therefore reached a high at the beginning of 2022 as part of the fight against the omicron wave.

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“The reason for the reluctance to consume is the unexpectedly persistently high inflation despite the relaxation in energy prices and the associated real loss of purchasing power,” Geraldine Dany-Knedlik from the German Institute for Economic Research (DIW) commented on the figures. She and her colleagues had assumed a decline in economic output of 0.1 percent. “The fact that it was now clearer than expected was mainly due to private consumption, which at minus 1.2 percent fell even more than previously assumed,” says Dany-Knedlik.

In April, the inflation rate was 7.2 percent compared to the same month last year. Energy and food prices continued to rise. Compared to April 2022, companies charged an average of 21.1 percent more for household energy last month. For natural gas it was 33.8 percent, for electricity 15.4 percent and for district heating 12.3 percent. For groceries, people in the country had to pay 17.2 percent more for the same basket.

Of course, this puts pressure on people’s purchasing power, as wages are currently rising, but not as fast as prices. According to the Federal Statistical Office, average wages and salaries rose by 5.7 percent gross at the beginning of the year. Net it was even 7.8 percent. “In addition to the decline in short-time work, payments of inflation compensation premiums are likely to have contributed to this,” the statisticians said. “Nevertheless, due to the persistently high inflation, there were still average real wage losses for employees at the beginning of 2023.”

After deducting the inflation rate, wages and salaries fell by 4.0 percent last year. If the trend continues this year, real wages will fall for the fourth year in a row. In 2020 the decrease was 1.1 and in 2021 0.1 percent. The situation is different when it comes to profits: corporate and asset profits increased by almost ten percent at the beginning of the year.

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“The situation is more dramatic than the government has wanted us to believe in recent months. The weakening demand is preventing the economy from getting back on its feet,« commented the economic policy spokesman for the Left Party in the Bundestag, Christian Leye, on the situation. The solution is obvious: “Raise wages across all sectors, finally bury the debt brake and boost investment. It is no solution to swing the austerity hammer in the FDP style now in the crisis.«

Meanwhile, economists are also looking somewhat more pessimistically at the coming months. The economic indicator of the Institute for Macroeconomics and Business Cycle Research (IMK) of the Hans Böckler Foundation has clouded over noticeably, as the IMK announced on Thursday. The German economy is no longer threatened only by weakening consumption: “The foreign trade environment will probably only allow the heavily export-oriented German economy to grow sluggishly over the summer months,” says economic researcher Thomas Theobald, summarizing the outlook for the coming months.

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