Germany Enters Recession, Downturn Forecast For United States

Europe’s largest economy has formally entered into recession after registering two straight quarters with negative economic growth. Germany has been unable to prevent an economic downturn while an updated forecast estimates that the United States will follow by the end of 2023.

The country saw a decline of 0.3% in the first quarter of 2023, which followed a 0.5% decline in the last quarter of 2022.

The negative economic news out of Europe comes as the continent faces a number of economic headwinds. Like the United States, many European countries are facing severe inflation.

Germany currently faces a 7.2% inflation rate, nearly 50% higher than that of the United States.

Furthermore, Germany in particular has been facing an energy strain due to the war between Russia and Ukraine. Germany agreed after the 2011 Fukushima disaster to dismantle its nuclear power plants, with the hope of switching to more solar and wind power.

However, this did not turn out to be the case. Germany became increasingly dependent on Russian coal and oil. Former German Chancellor Angela Merkel held a relatively close relationship with Russian President Vladimir Putin, which kept the fossil fuels flowing.

This even included German participation in the construction of the Nord Stream pipeline. Last year, Russia announced the indefinite suspension of natural gas through the conduit. In September the pipeline was hit with mysterious explosions.

The tumultuous geopolitical situation has led to Germany bringing former coal plants back online.

In addition, the country will also keep major coal-burning plants online that were originally planned to be phased out. Germany is rich in coal, but much of it is brown coal, which produces a higher-than-average amount of pollution.

The negative economic news out of Germany also comes as concern over the American economy is growing. Loan giant Fannie Mae believes that the country will fall into a “modest” recession by the end of the year.

Higher interest rates spurred by high inflation are likely to cause a slowdown in the American economy, the institution believes.