On Thursday, the German Federal Statistics Office reported the second monthly decline for Europe's largest economy.
Data showed that quarterly GDP decreased by 0.3% when prices and calendar changes were taken into account, putting the country into recession. As Germany dealt with an energy crisis precipitated by Russia's invasion of Ukraine, GDP shrank by 0.5% in the final three months of 2022.
A recession is usually defined as the economy contracting for two consecutive quarters.
The Gross Domestic Product of Germany fell by 0.3% between January and March. It follows a decline of 0.5% in the final quarter of 2022 in Europe's largest economy.
The Federal Statistical Office reported on May 25 that Germany's GDP fell by 0.3% from the beginning of the year to the middle of the year. This decline comes after Europe's largest economy experienced a 0.5% decline in the final quarter of 2022. A recession is considered to have officially begun after two consecutive quarters of contraction.
These numbers are a blow to the German government, which just last month boldly increased its growth projection for the year after worries about an energy shortage during the winter proved unfounded.
It expected 0.4% GDP growth, which is an upward revision from the 0.2% expansion predicted in late January.
On Thursday, the euro fell as Europe's biggest economy The dollar reached its highest level in two months thanks to safe-haven demand as fears of a US default increased, while the German recession was confirmed.
Fitch, a ratings firm, recently voiced its latest worry by placing the United States' "AAA" debt ratings on negative watch, signaling a possible downgrade should politicians fail to agree to increase the debt limit.
With barely a week left until the "X-date" of June 1, when the Treasury has warned it will be unable to pay all its payments, the demand for safe havens has helped the greenback.
According to senior analyst at Danske Bank Stefan Mellin, "it has been risk-off this week and that has benefitted the dollar generally."
The euro fell to multi-month lows versus the dollar as European economic woes worsened.
Germany's economic contraction in the first quarter was the latest evidence of instability in Europe. The country entered a recession at the end of 2022 due to two consecutive quarters of negative growth.
The economic momentum in Germany is shockingly weak, according to Danske Bank's Mellin, who also cited this week's Ifo and PMI statistics. "We have seen some divergent cross-Atlantic macro data this week," Mellin said.
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