Germany Narrowly Avoids Recession as War, Pandemic Weigh on Economy

A worker at German manufacturer of silos and liquid tankers moves rolls of aluminium at the company's plant in Winsen, Germany, on July 10, 2018. Fabian Bimmer/Reuters

Germany’s economy narrowly avoided a recession in the first quarter (Q1) as the Ukraine war and the lingering effects of COVID-19 pandemic restrictions weighed on economic activity, but with enough wiggle room for Europe’s biggest economy to eke out a 0.2 percent pace of growth.

Data released on May 25 by Germany’s Federal Statistical Office show that Germany’s gross domestic product grew by 0.2 percent quarter-over-quarter in Q1 of 2022, in line with analysts’ estimates.

“War in Ukraine and the continuing COVID-19 pandemic have intensified existing distortions, including interruptions in supply chains and rising prices,” Georg Thiel, president of the Federal Statistical Office, said in a statement. “Despite difficult framework conditions in the global economy, the German economy started 2022 with a slight growth.”

Workers fit a hood on a car on a production line at German car manufacturing giant Volkswagen's headquarters in Wolfsburg, Germany, on March 1, 2019. John McDougall/AFP/Getty Images

Thiel’s remarks about global macro problems echo the findings of a new World Economic Forum (WEF) report in which leading economists said the world is facing a complex combination of challenges, including high inflation and greater food insecurity that could lead to social unrest in some countries.

Inflation is expected to remain high through 2022, supply chain disruption is expected to intensify, and the world is on track for the worst food crisis in recent history, according to the World Economic Forum’s Chief Economists Outlook report.

The 0.2 percent pace of quarterly gross domestic product (GDP) growth means that Germany has managed to dodge a recession, typically defined as two consecutive quarters of quarter-over-quarter contraction. The country’s economic output fell by 0.3 percent at the end of 2021.

Recent German industrial production data show output falling by 3.9 percent in March. The sharp drop, nearly four times as high as analysts expected, prompted some economists to predict that Europe’s biggest economy was due for a nosedive into recession.

“If you are in search of bad news, just have a look at German macro data. Industrial production just wrapped up an entire batch of expectedly weak March data,” Carsten Brzeski, ING’s Global Head of Macro, wrote in a note, saying the data point to a looming recession in Europe’s biggest economy.

On May 25, following the release of Germany’s GDP figures, Brzeski reacted by sticking to his earlier recessionary forecast.

“The inventory build up and weak consumption in the first quarter, as well as very weak consumer confidence, clearly dent the optimism currently sent by traditional leading indicators,” he wrote. “We stick to our base case scenario of a mild contraction in the German economy in the second quarter.”

Other analysts have made calls for an imminent German recession.

Andrew Kenningham from Capital Economics wrote in a note that the weak industrial output figures likely mark “the start of a deep manufacturing downturn which is likely to drag the entire economy into recession.”

Other German economic data point to economic weakness, including a contraction in private consumption for the second quarter in a row and consumer confidence readings remaining close to all-time lows.