German Economy Flatlined Unexpectedly in 1Q

The German economy stagnated in the first quarter, a weaker result than expected, as high inflation and rising central bank rates weighed on spending.

Germany’s gross domestic product flatlined from January to March compared with the previous quarter, according to preliminary data from the country’s statistics office released Friday, from a downwardly revised 0.5% contraction in the fourth quarter of 2022.

The reading falls short of the 0.2% on-quarter growth expected by economists in a poll by The Wall Street Journal.

It means Germany marginally avoided a recession, which typically means two consecutive quarters of negative growth.

Both household and government expenditure declined at the beginning of 2023, Destatis said.

The German government earlier in April upgraded its forecasts for economic growth, expecting real GDP to rise 0.4% in 2023 as a whole, greater than the 0.2% forecast in January, reflecting the economy’s resilience and a rebound in manufacturing at the start of the year, it said.

However, economists are more skeptical, forecasting the economy to expand by 0.1%, according to a poll by FactSet ahead of the first-quarter GDP print.

In data released Friday, France’s economy expanded 0.2%, while Italy’s and Spain’s both grew 0.5% in the first quarter. The European Union reports GDP data later Friday at 0900 GMT.