Germany is on the Brink of Recession

World » EU | July 29, 2022, Friday // 13:03

Germany's economic growth stagnated in the second quarter of the year, official data showed, and analysts warned that a recession could be around the corner amid a looming energy crisis.

Europe's largest economy recorded zero growth due to "difficult" global economic conditions, the federal statistics agency Destatis reported.

The continuing impact of the pandemic, disruptions in supply chains and the war in Ukraine, are clearly reflected in short-term economic development, Destatis said.

Growth in the first quarter was revised upwards to 0.8% from an initial estimate of 0.2%. But the weak data for the second quarter showed that "Germany's economic engine is at a standstill," said Jens-​Oliver Niklasch, senior economist at LBBW bank.

The government and consumers supported the economy until June, but rising inflation will see household spending "soon run out of its potential", he said.

Driven by high energy prices, consumer prices in Germany rose 7.5 percent in July, well above the European Central Bank's two percent target.

"With growing headwinds for the economy, Germany is on the brink of recession," Niklasch said.

The sharp drop in key economic indicators such as consumer confidence is now "recession territory," said Carsten Brzeski, an economist at ING Bank.

The threat of a shutdown of Russian gas supplies amid tensions over Ukraine has raised concerns that Germany may have to ration energy in the winter, which will hurt business.

"The war in Ukraine is putting an end to the German economic business model based on cheap energy imports and massive exports of goods in a globalized world," Brzeski said.

Separate data released today showed Germany's unemployment rate rose 0.1 percentage point to 5.4% in July, the second consecutive monthly increase. The latest increase is due to Ukrainian refugees joining the ranks of jobseekers in Germany, the Federal Labor Agency said.

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