The German economy is weakening. According to the Bundesbank, an upswing is not in sight for the time being.
According to the Bundesbank, after stagnating in the spring, the German economy will not pick up again in the summer. “In the third quarter of 2023, German economic output will probably remain largely unchanged again,” says the central bank’s monthly report published today.
Private consumption is likely to support the economy in view of stable employment and strong wage increases with falling inflation rates. However, weak demand from abroad is likely to continue to weigh on industrial production. In addition, higher interest rates dampened demand for construction and capital goods.
Inflation rate will continue to fall
According to estimates by the Bundesbank, the inflation rate will fall further in the coming months due to falling energy prices. Last year, the energy price shock as a result of the Russian war of aggression in Ukraine drove inflation up overall. On the other hand, wage growth is expected to remain strong – even beyond the turn of the year, write the experts. “This is a key reason why the inflation rate is likely to remain above 2 percent for a long time to come.”
On average for the current year, the Bundesbank most recently expected an inflation rate of 6 percent in Germany, based on the harmonized consumer price index, which is decisive for the monetary policy of the European Central Bank (ECB). 3.1 percent are expected in the coming year. The ECB is aiming for an inflation rate of 2.0 percent in the common currency area in the medium term. In the fight against inflation, which is also high in the euro zone, the monetary watchdogs have raised interest rates nine times in a row. This makes loans more expensive, which can slow down demand.
According to the Bundesbank, weak foreign demand was already weighing on industry in the second quarter. Headwind also came from the increased financing costs. These depressed demand for construction work and capital goods and slowed lending. In particular, there was significantly less demand for housing construction loans to private households.
The hoped-for spring revival of the German economy thus failed to materialise. According to preliminary data, economic output stagnated in the second quarter compared to the previous quarter. The Federal Statistical Office will publish details on the development of gross domestic product from April to the end of June on Friday. In the winter half-year, the German economy slipped into a so-called technical recession with two negative quarters in a row.
Source: Stern
