Germany is reportedly experiencing a recession due to depressed household consumption caused by inflation and high interest rates. Previously, Germany’s recession was marked in the last three months of last year, where the economy contracted by 0.5 percent.
“The German GDP data shows surprising negative signals,” said German Finance Minister Christian Lindner on Thursday, May 25, 2023.
The German economy experienced a recession in early 2023 after two consecutive quarters of contraction.
Quoting Reuters, this was marked by a 0.3% decrease in Germany’s gross domestic product in the first quarter of this year, following a previous decline in the fourth quarter of 2022.
It is also mentioned that a recession of 0.3 percent is attributed to the low purchasing power of the society due to very high inflation. This has occurred because the prices of goods have skyrocketed, leading the German population to cut back on spending.
As a result, the German economy is at risk of losing growth, with household consumption declining by 1.2 percent quarter over quarter. This is then followed by a significant decrease in government expenditures of 4.9 percent during that quarter.
For your information, the rise in inflation in Germany has necessitated higher expenses for daily necessities for the public. As a result, inflation has caused a decrease in purchasing power and savings for the population, particularly for those with lower to middle economic capabilities.
Despite that, the economic recession in Germany is also triggered by the Russia-Ukraine war. The high dependence on Russia for energy supply has caused a recession, ultimately burdening households and businesses.
Quoting from idxchannel.com, inflation is triggered by a 7.2% increase in energy costs in April. Meanwhile, according to cwts.ugm.ac.id, as of August 2022, the inflation rate in Germany stood at 8.3% and 7.9%.
Moreover, the Russia-Ukraine war has also caused disruptions that impact global food supply stability. The war has triggered a surge in prices for goods and energy, further driving up inflation.
The impact of this inflation is mainly felt by consumers whose expenses for items such as food and clothing increase. Additionally, inflation also affects a decrease in purchasing power, aggressive monetary policy tightening, and predictions of a slowdown in the US economy, leading to weakened economic activities.
Previously, in order to curb inflation, the central bank raised interest rates, causing a decrease in loans and consumer spending. However, this increase in interest rates led the global economy into a major recession in 2023. The rise in interest rates will slow down global GDP growth by up to 0.5%.