Why It Matters: Exports, a big driver of the economy, fell.
Germany is Europe's largest economy and its health directly affects the health of the 20 members of the eurozone and the wider European Union, the world's third largest economy, after the United States and China, in terms of output and purchasing power, according to the World Bank.
Early forecasts predicted that the German economy would remain flat in the first quarter, but Thursday's update fully reflected the additional data, including a 3.4 percent decline in industrial production in March compared to the previous month, driven by declining exports and the auto industry. .
Germany's economic growth has been heavily dependent on exports, particularly to China, where Volkswagen has been the dominant automaker for years. But the recent surge in popularity of Chinese-made electric vehicles among customers in Asia led to Volkswagen reporting a 15 percent drop in sales in China in the first three months of this year.
Overall, exports in March fell 5.2 percent from the previous month, according to government statistics.
German industrial companies were forced to cut output at the end of last year as energy prices hit record levels, driven by Germany's need to buy more liquefied natural gas, or LNG, which is more expensive than Russian gas delivered by pipeline.
Background: Inflation and high interest rates are not helping.
Inflation remains high in Germany, at 7.6 percent in April, and the European Central Bank has indicated that it may continue to raise interest rates to help move the rate of increase in prices closer to its target of 2 percent.
At the same time, unions have been battling employers for higher wages to offset rising prices. Settlements achieved in key sectors, including industrial and service workers, helped drive wage increases to 6.3 percent in the first three months of 2023.
Still, economists stress how hard it will be for Germany's lowest earners to be hit by the price spiral.
“In many cases, people with low wages and incomes will need at least another five years before the purchasing power of their wages, and thus their standard of living, will return to pre-crisis levels,” said Marcel Fratzscher, president of the German Institute for Economic Research.
What's Next: No solid recovery in sight.
The European Commission estimates that Germany will be the weakest member in terms of economic growth this year, managing an increase of only 0.2 percent.
Some economists agree.
“Looking ahead, we doubt that gross domestic product will continue to fall in the coming quarters, but we don't see a strong recovery either,” said Claus Vistesen, chief euro zone economist at Pantheon Macroeconomics.