Germany enters economic recession How could it affect bitcoin?

According to official data published today, May 25, 2023, production in Germany, the largest economy in Europe, fell by 0.3% in the first quarter of the year, after a contraction of 0.5% at the end of 2022. .

This is what is called a “technical recession”that is, the situation in which the economic production of a country, normally measured through the gross domestic product (GDP), decreases for two consecutive quarters.

“The persistent price increase continued to be a burden on the German economy at the beginning of the year,” the German Federal Statistical Office said. “This was particularly reflected in household final consumption spending, which decreased by 1.2% in the first quarter of 2023,” it added.

Claus Vistesen, chief euro area economist at Pantheon Macroeconomics, said consumer spending in the first quarter was constrained by “the shock in energy prices.” European energy prices were already on the rise when Russia’s invasion of Ukraine in February last year pushed them to record highs. Moscow proceeded to cut gas supplies to European countries, prompting Germany to declare a state of emergency.

On the other hand, there is optimism that the German recession may be short-lived. The most recent surveys indicate that business activity in the country expanded again in May, despite a sharp decline in manufacturing. Germany expects its economy to contract by 0.1% in 2023, according to the latest forecast from the International Monetary Fund.

Fear of international “shock waves”

The recession in Germany, Europe’s largest economy, has the potential to send shock waves across the region and beyond. There are several ways in which this event could affect other countries, and the uncertainty that arises from these possibilities can generate fear and instability in global markets.

economic interconnection: European economies are closely interconnected and many depend on Germany’s strong performance as an economic engine. If Germany buys fewer goods and services from other countries due to its own recession, it could cause these economies to slow down.

Domino effect in trade: Germany is a major exporter, therefore a decline in its production could disrupt supply chains in other countries that depend on its products, especially in the automotive and machinery industry.

Market confidence: The recession in Germany could dampen investor confidence across the region, which could lead to disinvestment and a decline in capital investment.

inflationary pressures: Inflationary pressures in Germany, exacerbated by the energy crisis, could spill over to other countries, particularly if they are dependent on Russian gas and if German inflation leads to tighter monetary policies by the European Central Bank.

Energetic politics: The energy crisis that contributed to the recession in Germany is a problem that affects the whole of Europe. If left unaddressed, it could lead to similar economic problems in other countries.

And how would this affect bitcoin?

The recession in Germany, if it becomes widespread, may have a significant impact on risk markets. When we talk about risky markets, we mean investments that have a high degree of uncertainty, such as stocks, derivatives, and bitcoin (BTC).

In the event of a general recession, investors may become more cautious and withdraw your funds from these riskier markets to seek refuge in safer investments, such as government bonds, gold and currencies considered stable. This could cause price declines in risky markets as demand wanes.

In particular, bitcoin and other cryptocurrencies could be strongly affected. Although some investors view bitcoin as “digital gold” or a hedge against uncertainty, its recent history shows that it can be highly volatile during periods of market turmoil. In times of economic uncertainty, investors may choose to sell their cryptocurrency holdings to cover losses in other parts of their portfolio or to accumulate cash, especially if they believe that the cryptocurrency may further decline in price.

However, some investors may also view falling prices in these risky markets as an opportunity to buy at lower prices, especially if they believe the recession will be short-lived.