Economy
Bundesbank: German economy shrinks in the first quarter
Upswing after downswing? The Bundesbank expects the economy to pick up speed again in the spring – unless the corona pandemic and supply bottlenecks continue to inhibit it. Photo: Markus Scholz/dpa
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According to the Bundesbank, Corona left its mark on Europe’s largest economy at the beginning of the year. The central bank does not expect a quick easing on the price front.
According to the Bundesbank, the Omikron wave slowed down the German economy at the beginning of the year. “In the winter quarter of 2022, German economic output is likely to decline noticeably again,” said the central bank’s current monthly report.
In addition to the restrictions to combat the corona pandemic, lost work due to the Omikron variant may also have contributed to this.
In view of the bulging order books of many companies, the Deutsche Bundesbank expects the economy to pick up speed again in the spring, “if the pandemic subsides and the supply bottlenecks continue to ease”.
In the final quarter of 2021, economic output in Europe’s largest economy fell by 0.7 percent compared to the previous quarter, according to preliminary data. If the gross domestic product shrinks two quarters in a row, economists speak of a so-called technical recession. However, this does not mean an economic slump for the year as a whole.
Moreover, the Bundesbank economists do not expect any rapid easing on the price front. Fueled above all by high energy prices, the harmonized index of consumer prices (HICP), which is decisive for the monetary policy of the European Central Bank (ECB), was 5.1 percent higher in Germany at the beginning of the year than in the same month of the previous year after 5.7 percent in December 2021. “In the coming months, inflation should remain high against the background of significant inflation at the wholesale levels and sustained demand,” wrote the central bank.
In this context, the Bundesbank is skeptical about the increase in the minimum wage planned by Federal Labor Minister Hubertus Heil to EUR 12 per hour from October 1, 2022. “This political intervention in wage determination would noticeably increase earnings in the lower wage groups and also noticeably in the higher wage segments radiate.” The overall economic impact should be manageable. “However, it cannot be ruled out that in the current environment of very high inflation rates, wages will be passed on to prices to a greater extent,” warned the central bank.