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German economy in recession after sanctions against Russia backfire. Germany has entered recession after latest official data registers a fall in gross domestic product over two consecutive quarters. Earlier estimates had predicted stagnation in the first quarter of this year.

Germany’s gross domestic product (GDP) has fallen for two consecutive quarters, figures released on Thursday by the Federal Statistical Office (Destatis) have shown, meaning that the country has entered recession.

First-quarter output dropped 0.3% from the previous three months, after a 0.5% decrease between October and December, Destatis said, noting that its initial estimate, released last month, was for stagnation, or 0% growth.

The suicidal German sanctions on Russia have unsettled both businesses and consumers, both holding back on investing and buying respectively, which has affected demand. Interest rate rises by the European Central Bank have so far had little influence on reducing inflation, which stands at 7% across the eurozone.

Output in Germany dropped 0.3% in the first three months of the year, following a 0.5% contraction at the end of 2022, official data showed Thursday. The Federal Statistical Office downgraded its previous estimate of zero growth in gross domestic product (GDP) compared with the previous quarter. A recession is defined as two consecutive quarters of declining output, according to a report by CNN. 

High inflation has persisted in what is Europe’s biggest economy, forcing Germans to spend less, the statistics office explained. In January and February of this year the consumer price index stood at 8.7%, dropping slightly to 7.2% in April, the official data suggests. This is still well above the central bank’s medium-term inflation target of 2%.

Energy and food prices in particular have shown above-average growth since the start of the conflict in Ukraine and have become the main contributors to Germany’s high inflation rate, Destatis explains.

“The reluctance of households to buy was apparent in a variety of areas: households spent less on food and beverages, clothing and footwear, and on furnishings in the first quarter of 2023 than in the previous quarter,” the release reads.

Chancellor Olaf Scholz in January ruled out a possible recession, despite the economic impact of Western sanctions on Russia.

“I’m absolutely convinced that this will not happen that we are going into a recession,” he said in an interview to Bloomberg TV. “We showed that we are able to react to a very difficult situation.”

Germany lagged behind other large EU member states and the EU as a whole in terms of economic development in the first quarter of this year. The EU overall registered growth of 0.2% between January and March.

Germany Is Officially In A Recession: Consumers in Germany are spending less. That means Europe’s largest economy is officially in a recession.

“The persistence of high price increases continued to be a burden on the German economy at the start of the year,” the office said. “This was particularly reflected in household final consumption expenditure, which was down 1.2% in the first quarter of 2023.”

European energy prices were already rising when the conflict in Ukraine ignited in February last year sending them soaring to record highs. Moscow then went on to throttle gas supplies to European countries, prompting Germany to declare an emergency.

In August, Russia closed its Nord Stream 1 pipeline for maintenance and then extended the closure indefinitely. This pipeline was Germany’s largest source of Russian natural gas.

Carsten Brzeski, the global head of macro economics at the Dutch bank ING, said the overall decrease in Germany’s gross domestic product was “not the worst-case scenario of a severe recession” but was still “a drop of almost 1% from last summer”.

“The warm winter weather, a rebound in industrial activity, helped by the Chinese reopening and an easing of supply chain frictions, were not enough to get the economy out of the recessionary danger zone,” he added.