Germany in recession – plus Jeremy Hunt backs rate hikes even if growth constricts

Germany’s economy has slipped into recession in the first three months of the 2023, new statistics show – while fears of economic contraction in the UK grow as interest rate look set to be hiked again. 

The German economy – Europe’s largest – contracted by 0.3% between January and March, the country’s statistics office said. A contraction of 0.5% was recorded in the last quarter of 2022.

A country is generally deemed to be in recession when its economy shrinks for two consecutive three-month periods, or quarters.

Analysts say Germany’s economy was negatively affected by Russian gas supply shortages after the invasion of Ukraine, while inflation has also impacted spending.

Higher prices have meant households curtailed spending on items from food to furniture, while high energy prices impacted industrial orders.

The Federal Statistical Office downgraded its previous estimate of zero growth saying: “The persistence of high price increases continued to be a burden on the German economy at the start of the year.

“This was particularly reflected in household final consumption expenditure, which was down 1.2% in the first quarter of 2023.”

CNN reported that Franziska Palmas, senior Europe economist at Capital Economics, forecast that German output would shrink again in the third and fourth quarters, citing global growth concerns affecting Germany’s exports.


Meanwhile, the British Chancellor, Jeremy Hunt, said that he would stand behind further interest rate hikes by the Bank of England, even if the move risks plunging the UK into recession.

When asked by Sky News, he said that measures to bring down inflation were needed.

“Yes, because in the end, inflation is a source of instability. And if we want to have prosperity, to grow the economy, to reduce the risk of recession, we have to support the Bank of England in the difficult decisions that they take,” he said.

The Bank of England is now expected to raise the base rate to 5.5% by the end of this year. y.

An investment director at asset manager Abrdn, Luke Hickmore, told Radio 4’s Today Programme:

I don’t think it’ll be a really hard recession, but we will feel it, and I think people’s incomes are going to come under a lot of pressure from those higher mortgage rates.


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