Economy: Bundesbank: Weakness in the German economy continues

According to the Bundesbank, the weak phase of the German economy will last into the current year. “Even in the first quarter of 2025, the German economy is unlikely to be able to free itself from the long-lasting stagnation phase,” says the central bank’s January monthly report.

According to preliminary calculations by the Federal Statistical Office, German economic output shrank by 0.2 percent last year. This means that 2024 was the second year of recession in a row for Europe’s largest economy. For the final quarter of 2024, the statisticians assume in an initial estimate that the gross domestic product (GDP) fell by 0.1 percent compared to the previous quarter.

Weak industry – hope for private consumption

“The German economy remained weak in the fourth quarter of 2024,” states the Bundesbank. “Industry is likely to have once again developed particularly weakly.” Despite a certain recovery, orders from abroad remained subdued and the construction sector is unlikely to have provided any growth impulses.

Private consumption, on the other hand, should have recovered somewhat as increased wages gave people more scope for spending. “However, consumer uncertainty continued and counteracted a stronger recovery in consumer spending,” says the Bundesbank.

Inflation remains elevated for the time being

The fact that life in Germany has recently become more expensive again could also have a dampening effect: in December, consumer prices were 2.6 percent above the level of the same month last year – that was the second highest inflation rate in the past year.

There is no rapid easing in inflation in sight: “Inflation is likely to remain high at the beginning of the year,” predicts the Bundesbank. The increase in the CO2 price for gasoline, heating oil and gas as well as the increase in the price of the Germany ticket will most likely drive inflation at the beginning of the new year.

The Bundesbank’s economists still offer some hope: “In the following months, the inflation rate is likely to fall again. The recently very strong increase in the price of services is declining noticeably. However, it still remains well above its long-term average.” In December, prices for services such as insurance, airline tickets and restaurant visits in Germany were 4.1 percent higher than in the same month last year.