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Global Economy

German economy is stagnating

The growth of the German economy came to a complete standstill in the spring months. In the second quarter, gross domestic product (GDP) remained unchanged compared to the first three months of this year. The Federal Statistical Office announced this today in a first estimate.

The economy was primarily supported by private and government consumer spending. However, external factors held back economic growth. "The difficult global economic conditions with the ongoing corona pandemic, disrupted supply chains, rising prices and the war in Ukraine are clearly reflected in economic development," said the Wiesbaden statisticians. Economists had expected a minimal increase of 0.1 percent.

First quarter went better

At the beginning of the year, however, the economy went better than expected: the statisticians corrected the increase in GDP for the first quarter to 0.8 percent from the 0.2 percent initially mentioned.

Compared to the same period last year, gross domestic product grew by 1.5 percent. Last year, the domestic economy felt the effects of the third corona wave much more clearly.

Bundesbank pessimistic

The International Monetary Fund (IMF) recently lowered its forecast for German economic growth in 2022 as a whole. For Germany, the fund expects an increase of 1.2 percent. The IMF has thus revised its May forecast significantly downwards by 0.8 percentage points.

The Bundesbank was similarly pessimistic about the current year. "From today's perspective, GDP growth in the current quarter is likely to be somewhat weaker than expected in the base scenario of the Bundesbank projection of June 2022," said the central bank's monthly report for July.

The war in Ukraine is exacerbating problems that were already troubling the German economy. Rising energy prices and persistent supply bottlenecks are burdening the industry. At the same time, the highest inflation in decades is slowing down private consumption, which is an important pillar of the German economy.

High energy prices are a burden

The ifo business climate, for which around 9,000 companies assess their current business situation and expectations for the next six months, fell in July to its lowest level in a good two years. "Germany is on the threshold of recession," said ifo President Clemens Fuest. "High energy prices and the threat of gas shortages are weighing on the economy."

Commerzbank chief economist Jörg Krämer assumes that the German economy is already in a downturn. How bad things get in the end is primarily in the hands of Kremlin ruler Vladimir Putin. "If gas supplies stopped completely, a deep recession would be inevitable." This means that the German economy would shrink over a longer period of time.

Euro countries grow overall

Despite record inflation and the Ukraine war, the economy in the euro zone grew more significantly than expected in the spring. The gross domestic product in the countries with the common currency between April and June increased by 0.7 percent compared to the same quarter of the previous year, as announced by the European statistical office Eurostat.

The economy in the euro area is burdened by high inflation, which is further fueled by the Ukraine war and is clouding the business climate. Inflation in the euro zone rose to a high of 8.9 percent in July. The EU Commission only expects economic growth of 2.6 percent for the year as a whole. EU Commissioner Paolo Gentiloni recently warned that if Russia shuts off the EU's gas tap completely, there is a risk of a recession in the second half of 2022.

Spanish economy robust

In contrast to the German economy, Spain's economy is proving to be robust. There, the gross domestic product rose by 1.1 percent, as the statistics office INE announced today.

In Spain, a high level of investment and a strong increase in consumption provided the upswing despite high inflation. The growth clearly exceeded the expectations of the Spanish National Bank, which had expected an increase of 0.4 percent.

Strong foreign trade in France

France also recorded modest growth over the same period, which was higher than expected. The economy grew 0.5 percent in the second quarter. In the first three months of the year, France had recorded a slight downturn of 0.2 percent. Both the French central bank and the statistics office then assumed growth of between 0.2 and 0.25 percent for the second quarter.

According to the French statisticians, the better development is now largely due to good figures in foreign trade. In addition, the decline in consumer spending of 0.2 percent was significantly less than feared. Insee is now forecasting growth of 2.5 percent for 2022 as a whole.

US economy is shrinking

The USA, on the other hand, has already slipped into a "technical recession". Economic output fell for the second quarter in a row. In the period from April to the end of June, the annual gross domestic product shrank by 0.9 percent. The economy had already fallen by 1.6 percent in the first quarter.

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