EUROPEAN DATA WRAP: German winter recession, GfK lifts slightly

Analysis details (15:00)

German GDP, Q1 (Detailed)

• Overall, the release saw a substantial negative revision which resulted in a technical recession for the German economy over the winter period.


• German GDP Detailed Q/Q SA (Q1) -0.3% vs Exp. 0.00% (Prev. 0.00%)


• Desks spent much of last year forecasting a German winter recession, though initial readings pointed to stagnation rather than a recession with the economy aided primarily by an easing in energy prices. So, while today’s revision lower was a surprise to market forecasts, it was not entirely unexpected – particularly as Germany’s GDP is often subject to substantial revisions.


• Interestingly on the inflation/policy front, the stats agency Destatis writes that “the persistence of high price increases continued to be a burden on the German economy at the start of the year. This was particularly reflected in household final consumption expenditure”; analysts said this implies that while the growth backdrop is concerning, the ECB is unlikely to be able to ease off the pedal – a feature of more recent data as well. Albeit, the Q1 release is obviously very backwards-looking.


• Looking ahead, given the tenor of recent surveys the picture in terms of Q2 growth is somewhat clouded, with a discrepancy between releases pointing to a recession or stagnation; nonetheless, what is clear is that the outlook for the German – and by extension, the Eurozone economy as a whole – is poor for the next few quarters.

German GfK, Jun

• Overall, a slight improvement in sentiment, though much less than the marked increase seen in the prior month.


• German GfK Consumer Sentiment (Jun) -24.2 vs. Exp. -24.0 (Prev. -25.7, Rev. -25.8)


• GfK highlights that the incrementally more optimistic tone is primarily a result of expectations for an income increase following recent wage agreements, as such respondents take the view that the loss of purchasing power would be “less severe than originally feared”. Albeit, the still very negative absolute level of sentiment indicates that consumption is unlikely to be a significant driver of domestic development – a particularly notable view given the winter technical recession (see above). On this, GfK writes that a “recession will probably be avoided this year”, though does caveat this is dependent on how restrictive the ECB has to go.

25 May 2023 - 15:00- Fixed IncomeData- Source: Newsquawk