The Supply Chain Matters blog highlights this week’s reports that the German economy has officially slid into recession, and along with that, ongoing manufacturing recessionary conditions as-well.

 

This week, business media reports indicate that the German economy, the largest in Europe, slid into economic recession as of the first quarter of 2023.

Recession is generally defined as two consecutive quarters of economic contraction. That stated, such a definition is predicated on historic measures as contrasted with current conditions.

The German statistics agency reported this week that GDP in Q1-2023 declined by 0.3 percent, after declining 0.5 percent in Q4-2022. According to the government agency, consumer spending declined 1.2 percent in that latest quarter amid persistent high levels of inflation. The inflation rate in Germany reportedly persisted at 7.2 percent in April.

The agency additionally reported a 3.4 percent decline in industrial output in March, compared to February. Noted was: “Households spent less on food and beverages, clothing and footwear, and on furnishings.”

The European Union barely avoided falling into recession after the bloc’s statistical agency reported that collective output rose at an annualized rate of 0.3 percent in Q1-2023, after declining by 0.2 percent in Q4-2022. Reportedly, economic growth was aided by a drop in energy costs after an unusually warm winter across the continent. A dependence on natural gas supplies from Russia has been buffered by imported LNG supplies from the U.S. and other generative regions. Germany, however, had a stronger dependence on natural gas supplies from Russia.

Production and Supply Chain Activity Levels

In our Supply Chain Matters highlights of April’s global production and supply network activity levels (PMI), we noted that the April PMI value of 49.6 represented eight consecutive months of contractionary levels, thus reflecting a global manufacturing recession. Manufacturing output, however, reportedly edged higher driven by a solid expansion in consumer goods production among certain regions. Across the Eurozone, we highlighted an indication that new factory orders reportedly fell at the sharpest pace in four months. Of the eight Euro countries that make up the HCOB Eurozone Manufacturing PMI©, Germany ranked seventh with a reported PMI of 44.5, after recording a PMI value of 44.4 in March and 46.3 in April.  Thus, Germany is experiencing a manufacturing recession as well.

Germany has traditionally performed as the production powerhouse of the Euro sector especially in regard to intermediate and investment products that are the engine to other global regions. In March, exports reportedly declined 5.2 percent, the fastest rate in over three years. Reuters had reported that the German manufacturing PMI has languished below the 50 mark since July of 2022. There were reportedly concerns among German manufacturers towards future demand, due to ongoing geopolitical uncertainty, high inflation and tightening financial conditions.

As our January Research Advisory, 2023 Predictions for Industry and Global Supply Chains, noted, ongoing geo-political developments and a threat of recession among certain regions was on the minds of many businesses and their supply chain management teams entering 2023. The concern for economic recession was especially focused on Europe with the ongoing hostilities of the Russia and Ukraine conflict and with residual high levels of inflation. Now, as June approaches, Germany has succumbed to a recession. There may be other regions to come, but that remains to be seen.

 

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