Soaring energy prices pushed Germany into recession this winter, fresh data shows, despite Chancellor Olaf Scholz ruling out the possibility earlier this year.
Europe’s biggest economy shrank 0.3pc in the first three months of 2023, following a contraction of 0.5pc at the end of last year.
This makes Germany the only economy in the G7 to suffer a technical recession amid the Kremlin’s war in Ukraine.
The first quarter estimate was revised down from zero amid a bigger-than-expected drop in government and consumer spending.
The result is a setback for Germany, despite it avoiding the bleakest scenarios feared in the aftermath of Russia's invasion.
Mr Scholz told Bloomberg in January: “I'm absolutely convinced that this will not happen that we are going into a recession. We showed that we are able to react to a very difficult situation.”
A consistent driver of the contraction was the country’s key manufacturing sector, where a deepening downturn is casting doubt on the rebound many anticipate for the coming quarters.
The delayed impact of higher energy prices also impacted consumers and industry, analysts said.
“The massive rise in energy prices took its toll in the winter half-year,” said Joerg Kraemer, chief economist at Commerzbank.
Claus Vistesen at Pantheon Macroeconomics said the German recession was probably already over, but added: “we see no strong recovery either”.
He said continued interest rate rises by the European Central Bank will also dampen appetite for corporate borrowing and investment.
Tumbling gas prices have eased concerns that Europe faces another big slowdown this year, although massive spending on energy subsidies has battered government budgets.
Stubborn inflation has also meant central banks have had to raise interest rates more than expected.
The UK narrowly avoided a contraction at the start of 2023 and the economy remains smaller than its pre-crisis size.
“We see German GDP growth bumping along close to zero in Q2 and Q3, before re-accelerating in Q4, unless the Europe is stung by a very cold winter,” said Mr Vistesen.