According to the Bundesbank’s forecast, the German economy has one foot in a new recession. Gross domestic product is likely to have “shrinked somewhat” in the past third quarter, according to the Bundesbank’s monthly report. If it declines for the second time in a row in the current fourth quarter, it will be referred to as a “technical recession”. This last happened around the turn of the year 2022/23, before it ended in the spring with the economy stagnating. The Federal Statistical Office is expected to publish an initial estimate of the performance from July to September at the end of October.
“The German economy was slowed down by several factors,” emphasized the Bundesbank with a view to the past quarter. “Foreign demand for industrial products continued to be weak.” The increased financing costs also dampened investments, which depressed domestic demand in industry and especially in construction. The existing order cushion could only partially cushion this. Production in both industry and the main construction sector fell significantly in the summer.
“The German economy received a tailwind from the still robust labor market and strong wage increases with declining inflation,” says the monthly report. “However, private households have probably not yet used the additional spending flexibility to increase consumer spending.” This is indicated by the weak real sales in retail and the hospitality industry, as well as the high propensity to save indicated in consumer surveys. The weakness of industry and private consumption has also slowed down many service providers.
The Bundesbank expects inflation to ease slightly. “In the coming months, the inflation rate should weaken somewhat further overall due to the strong increase in energy prices in the second half of 2022 and the gradually continuing fall in inflation for food and non-energy goods,” she expects. The so-called core rate – in which the fluctuating energy and food prices are factored out – is likely to remain slightly above four percent in the near future, “mainly because of the continued strong dynamics of service prices.” Experts expect that many companies will try to pass on increased personnel costs to their customers.