German Economy Avoids Recession, But Uncertainty Looms

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The German economy avoided falling into a recession in the first quarter of 2023, but economists remain cautious about its future prospects. According to the federal statistics office, gross domestic product remained unchanged quarter-on-quarter in adjusted terms, despite predictions of a 0.2% growth by analysts. The country had experienced a 0.5% decline in the fourth quarter of 2022, reviving concerns about a technical recession. The recent rebound in industrial production could carry the economy through Q2, but economists warn that a slowdown in the US economy, coupled with the impact of recent monetary policy tightening, could result in a technical recession in the winter half-year.

The German government has raised its economic growth forecast to 0.4% for this year, and German Economy Minister Robert Habeck predicts an acceleration in growth following Q1. However, experts warn that the country has not escaped the risk of a recession yet. The eurozone's largest economy may continue to flirt with a recession, as the industrial backlog will have been reduced without new demand coming in, and the ECB's sharp rise in interest rates may contribute to an economic downturn. While a technical recession in the winter half-year is off the table for now, economists advise caution in the second half of the year.

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