German economy avoids recession as war and pandemic weigh | Investment News

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BERLIN (Reuters) – Germany’s economy grew slightly in the first quarter from the previous quarter, data showed, with higher investment offset by the dual impact of war in Ukraine and COVID-19 which experts said weigh more heavily over the next three months. June.

Europe’s largest economy recorded adjusted growth of 0.2% quarter-on-quarter and 3.8% year-on-year, the Federal Statistics Office said on Wednesday. A Reuters poll predicted 0.2% and 3.7% respectively.

The reading meant Germany skirted a recession, often defined as two consecutive quarters of quarter-on-quarter contraction, after gross domestic product (GDP) fell 0.3% at the end of 2021 .

While household and public administration spending remained mostly at the same level as in the previous quarter and exports fell at the start of the year, investments rose.

Investment in construction, boosted by mild weather, rose 4.6% from the previous quarter, despite higher prices, and investment in machinery and equipment rose 2.5%.

German business sentiment rose unexpectedly in May as its economy showed resilience, according to an Ifo institute survey released this week that found no observable signs of recession.

However, there is no recovery in sight either, and Sebastian Dullien, director of the Institute for Macroeconomic Policy (IMK), predicted the effect of war and pandemic-related restrictions in China – the Germany’s largest trading partner last year, according to official data – would be much larger in the second quarter.

ING economist Carsten Brzeski said he stood by his base case of a slight contraction in second-quarter GDP after Wednesday’s reading.

“The accumulation of inventories and weak consumption in the first quarter, along with very low consumer confidence, clearly dampen the optimism currently conveyed by traditional leading indicators,” he said.

An index of consumer sentiment from the GfK institute rose slightly in June from a historic low in May, as household spending was weighed down by inflation.

The government forecasts economic growth of 2.2% in 2022.

(Reporting by Miranda Murray and Rene Wagner; Editing by Paul Carrel and John Stonestreet)

Copyright 2022 Thomson Reuters.

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