Germany, Europe’s largest and the world’s fourth-biggest economy, has entered a recession.

The development came just as Fitch Ratings placed the U.S. on ‘negative watch’ for a possible downgrade due to the uncertainty surrounding the nation’s ongoing debt ceiling debate.

The European country’s gross domestic product (GDP), according to data released by Germany’s statistics agency on Thursday, shrank by 0.3 per cent in the year’s first quarter, the second consecutive quarter in which contraction would be noted.

Technical recessions can occur after two consecutive quarters of negative growth.

At the beginning of 2023, private sector investment and construction climbed, according to the statistics office. However, declining consumer spending stifled the expansion as prices rose and individuals cut down on spending.

In Germany, household spending fell 1.2 per cent in the most recent quarter, while government spending fell 4.9 per cent from the previous quarter.

A significant portion of household spending power was reduced as food prices rose.

Germany was particularly vulnerable after Russia’s conquest of Ukraine because the country relied on Russia for natural gas.

Compared to the last quarter of 2022, investment in machinery and equipment increased by 3.2 per cent, while investment in construction increased by 3.9 per cent.

“The persistence of high price increases continued to be a burden on the German economy at the start of the year,” the statistics office said.

As the European Central Bank is ready to raise interest rates again, a eurozone recession could influence the policy path.