According to Bundesbank forecasts, the German economy grew slightly in the spring due to falling inflation and rising wages. That would end the recession.
According to the monthly report published today by the Bundesbank, German economic output is likely to have increased slightly again in the second quarter of 2023. In the two previous quarters, gross domestic product had shrunk by 0.5 percent and 0.3 percent – economists speak of a technical recession if there are two declines in a row. For the year as a whole, the Bundesbank experts expect the economy to contract by 0.3 percent.
Optimistic view of spring
At the end of the month, the Federal Statistical Office intends to make an initial estimate as to whether there was actually enough growth in the spring quarter just ended. “Private consumption, which had previously fallen sharply, has stabilized,” said the Bundesbank, explaining its optimism with regard to the spring. “Contributing to this was that the labor market was still in good shape, wages rose sharply and price increases did not accelerate any further.”
The service providers should also have benefited from this. At the beginning of the year, the inflation rate was still 8.7 percent, which depressed consumers’ purchasing power. The inflation rate is currently significantly lower at 6.4 percent. Collective bargaining agreements in some sectors, including tax-free inflation premiums, more than made up for this in some cases.
Easing delivery bottlenecks
According to the Bundesbank, easing supply bottlenecks also speak in favor of an end to the recession. “Together with the high backlog of orders, they prevented poorer results in industry and construction,” it said. However, both sectors could not have expanded their production compared to the previous quarter.
“Industry was slowed down by the fact that foreign demand fell,” writes the Bundesbank: “In addition, the increased financing costs dampened domestic investment.” Many projects, for example in construction, are on hold due to extremely high financing costs.
Recently, it has become clear how gloomy the mood is in many companies in Germany. Accordingly, the Bundesbank expects the economic recovery to be more hesitant than expected by the end of the year. According to the forecasts, the next two years should see an upward trend again.