Germany Enters Recession in Blow to Europe’s Economy

Germany slipped into recession during the first three months of the year, as households cut spending in response to sharply higher prices for energy and food.

With Europe’s largest economy now having shrunk for two quarters in a row, meeting the technical definition of a recession, the eurozone as a whole may also have also contracted in the first quarter.

The development doesn’t fundamentally alter economists’ views about the country’s immediate prospects, and any decline in output in the broader region is likely to have been modest.

Still, a recession in the eurozone would deflate some of the optimism that has built up around the currency area’s economic prospects in recent months. It could also inspire greater caution among policy makers at the European Central Bank as they prepare to raise interest rates further.

“A technical recession would be a change in the overall narrative on how resilient the eurozone economy has been over recent quarters,” said Bert Colijn, an economist at ING.

Germany’s statistics agency said Thursday that gross domestic product—a broad measure of the goods and services produced by an economy—was 0.3% lower in the three months through March than in the final quarter of last year. It had previously estimated that the economy flatlined in the first quarter, having contracted by 0.5% in the final quarter of last year.

The agency said a 1.2% fall in household consumption was the main reason for the contraction, as households saw their spending power eroded by a surge in food prices. In March, German households were paying 21.2% more for their food purchases than a year earlier.

In the months immediately following the invasion of Ukraine, economists had warned that Germany faced a high risk of sliding into recession, given its reliance on Russian supplies of natural gas. But economic data releases at the turn of the year appeared to indicate that Germany would avoid that fate.

The revised figures for the first quarter confirmed that the world’s fourth-largest economy had succumbed to recession, but one less severe than feared when the Kremlin cut gas supplies in summer 2022.

Business surveys have pointed to a return to growth in Germany during the second quarter. But the impact of higher borrowing costs and a weak expansion in many of its main export markets point to the possibility of a renewed contraction in the three months through September.

“Higher interest rates will continue to weigh on both consumption and investment and exports may also suffer amid economic weakness in other developed markets,” said Franziska Palmas, an economist at Capital Economics who expects declines in GDP during both the third and fourth quarters.

Should the estimates for growth in other eurozone members be unchanged, the new measure of GDP for Germany suggests the currency area’s economy as a whole contracted slightly in the first quarter. The European Union’s statistics agency currently estimates it grew at an annualised rate of 0.3%, after shrinking by 0.2% in the final quarter of last year.

While that change in measured output would be small, it may have an influence on the ECB’s interest rate decisions over coming months. The ECB’s economists raised their growth forecasts for this and subsequent years in March, partly in response to a picture of the eurozone economy at the turn of the year that now appears overly optimistic.

An original watercolour illustration for the cover of Harry Potter and the Philosopher’s Stone, 1997 — the first book in J.K. Rowling’s hit series—could sell for US$600,000 at a Sotheby’s auction this summer.

The illustration is headlining a June 26 sale in New York that will also feature big-ticket items from the collection of the late Dr. Rodney P. Swantko, a surgeon and collector from Indiana, including manuscripts by poet Edgar Allan Poe and Arthur Conan Doyle, author of the Sherlock Holmes books

The Harry Potter illustration, which introduced the young wizard character to the world, is expected to sell for between US$400,000 to US$600,000, which would make it the highest-priced item ever sold related to the Harry Potter world. This is the second time the illustration has been sold, however—it was on the auction block at Sotheby’s in London in 2001, where it achieved £85,750 (US$107,316).

The artist of the illustration, Thomas Taylor, was 23 years old at the time and a graduate student working at a children’s bookshop. According to Sotheby’s, Taylor took a “professional commission from an unknown author to visualise a unique wizarding world,” Sotheby’s said in a news release. He depicted Harry Potter boarding the train to Hogwarts on platform9 ¾ platform, and the illustration became the “universal image” of the Harry Potter series, Sotheby’s said.

“It is exciting to see the painting that marks the very start of my career, decades later and as bright as ever! It takes me back to the experience of reading Harry Potter for the first time—one of the first people in the world to do so—and the process of creating what is now an iconic image,” Taylor said in the release.

Meanwhile, to commemorate the 175th anniversary of Edgar Allan Poe’s For Annie , 1849, Sotheby’s recently reunited the autographed manuscript of the poem with the author’s home, Poe Cottage, in the Bronx.

The cottage is where the author lived with his wife, Virginia, and mother-in-law, Maria Clemm, from 1846 until he died in 1849. The manuscript, also from the Swantko collection, will remain at the home until it is offered at auction at Sotheby’s on June 26 with an estimate between US$400,000 and US$600,000.

The autographed manuscript will remain at Poe Cottage until it is offered at auction at Sotheby’s on June 26.
Matthew Borowick for Sotheby’s

Poe Cottage, preserved and overseen by the Bronx County Historical Society, is home to many of the author’s famous works, including Eureka , 1948, and Annabel Lee , 1927.

“To reunite the For Annie manuscript with the Poe Cottage nearly two centuries after it was first composed brought to life literary history for a truly special and unique occasion,” Richard Austin , Sotheby’s Global Head of Books & Manuscripts, said in a news release.

For Annie was one of Poe’s most important compositions, and was addressed to Nancy “Annie” L. Richmond, one of the several women Poe pursued after his wife Viriginia’s death from tuberculosis in 1847.

In a letter to Richmond herself, Poe proclaimed For Annie was his best work: “I think the lines For Annie much the best I have ever written.”

The poem was composed in 1849, only months before Poe’s death, Sotheby’s said in the piece, Poe highlights the romantic comfort he feels from a woman named Annie while simultaneously grappling with the darkness of death, with lines like “And the fever called ‘living’ is conquered at last.”

Poe Cottage, preserved and overseen by the Bronx County Historical Society, is home to many of the author’s famous works, including Eureka, 1948, and Annabel Lee,, 1927.
Matthew Borowick for Sotheby’s

In the margins of the manuscript are the original handwritten instructions by Nathaniel P. Willis, co-editor of the New York Home Journal, where Poe published other poems such as The Raven and submitted For Annie on April 20, 1849.

Willis added Poe’s name in the top right and instructions about printing and presenting the poem on the side. The poem was also published in the Boston Weekly that same month.

Another piece of literary history included in the Swantko sale could surpass US$1 million. Conan Doyle’s autographed manuscript of the Sherlock Holmes tale The Sign of Four , 1889, is estimated to achieve between US$800,000 and US$1.2 million.

Germany Enters Recession in Blow to Europe’s Economy

Second straight quarter of contraction in eurozone’s largest economy might prompt greater caution by central bankers