German economy dodges recession as war and pandemic weigh

BERLIN, May 25 (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 the war in Ukraine and COVID-19 which, according to experts, would weigh most heavily in the three months to 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. Read more

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. Read more

The government forecasts economic growth of 2.2% in 2022. read more

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

Our standards: The Thomson Reuters Trust Principles.