Europe’s largest economy enters recession: Fitch puts US credit on negative watch

Germany experienced a second consecutive quarter of negative growth in GDP with a 0.3% contraction in Jan-Mar quarter (2023). This follows a 0.5% contraction in preceding quarter of Oct-Dec (2022) and thus officially placing the Europe’s largest economy in recession as per most widely accepted definition. Food and Energy prices continue to inflict pain on the economy as Germany faces direct consequences of Russia-Ukraine situation. Energy prices were logged 6.8% higher in April 2023 than in the same month a year earlier, while food prices saw an above-average rise of +17.2% from the same month a year earlier. This is slightly lower than the 22.3% increase reported in March 2023. Initial estimates had indicated that the GDP would remain stagnant at zero growth, which raised hopes that Germany could possibly escape a recession but it could not hold. As per The Federal Statistical Office, the German Consumer Price Index (CPI) is running at 7.2% as of April 2023.

As the US ticks closer to the X-date (the day US defaults on its debt obligations), Fitch Ratings has put the US credit rating AAA to negative watch, a possible precusor to downgrade incase the debt ceiling issue is dragged further without reaching any conclusion in timely manner. Though, initially the US President wanted to raise the debt ceiling without any strings attached, as it has happended earlier on multiple ocassions but its quite obvious now that the resolution would only be reached after the White House agrees to take substantial cuts in future spending which would affect varied sectors and communites. Democrats have argued that it would be devastating cuts in federal aid for veterans — ranging from healthcare and food aid to housing assistance.

Debt ceiling update:

(31st May, 23) The US president and House Representative have reached an agreement and the debt ceiling package has been drafted. The House is set to vote Wednesday (31st May,2023), which would then send the bill to the Senate.

(2nd June, 23) The US Senate has passed the bill (Fiscal Responsibility Act of 2023) with a majority of 63 to 36 votes, thus averting the US default, yet again.

Last updated on June 2nd, 2023 at 09:15 am