What’s going on?
Data out on Thursday showed that Germany, the industrial titan of Europe, belly-flopped into a recession last quarter.
What does this mean?
Germany’s economy shrank by 0.5% in the last quarter of 2022, so when reports for the first quarter of this year showed zero growth, economists heaved a sigh of relief. See, stagnation isn’t pretty, but it’s better than the true bogeyman – a “technical recession”, when an economy shrinks for two straight quarters. But there’s been a plot twist: revised figures just revealed a 0.3% contraction in the first quarter of this year. Cue the dramatic music – because that means Germany’s in its first recession since the pandemic.
The main culprit was household consumption, with spending on everything from food to finery taking a nosedive as consumers tightened their belts. But even in other areas, the writing was on the wall: after all, indicators for the all-important manufacturing sector have been flashing red for some time now.
Why should I care?
The bigger picture: The worst is yet to come.
This isn’t just a short-term hiccup for Germany. The country’s firms are already catching a chill, with business confidence slipping for the first time in seven months in May – and the IMF’s tipped Germany to emerge as the worst-performing big economy this year. With a series of rate hikes on the horizon too, households and businesses are set for an even tighter squeeze. That’s bad news for the eurozone: as the biggest economy in the bloc sinks, the rest of the crew could be dragged down with it.
Zooming out: Misery will have company.
The US is expected to join the recession club by the second half of the year – with the debt limit debacle only adding to its woes. See, that situation’s essentially a lose-lose: a prolonged political standoff would hurt the economy, but any deal will probably come with spending cuts that’ll do serious economic damage too.
Originally Posted May 25, 2023 – Down Goes Deutschland
Disclosure: Interactive Brokers
Information posted on IBKR Campus that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.
This material is from Finimize and is being posted with permission from Finimize. The views expressed in this material are solely those of the author and/or Finimize and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
In accordance with EU regulation: The statements in this document shall not be considered as an objective or independent explanation of the matters. Please note that this document (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and (b) is not subject to any prohibition on dealing ahead of the dissemination or publication of investment research.
Any trading symbols displayed are for illustrative purposes only and are not intended to portray recommendations.