Bundesbank: German economy slowly gaining momentum
The German Central Bank (Bundesbank) predicted that the economy was slowly rising after a period of weakness that lasted about two years.
The German Central Bank (Bundesbank) announced its growth and inflation forecasts for 2024-2025 and 2026 in its first half-year report on the country’s economy.
Accordingly, the bank reduced its calendar-adjusted Gross Domestic Product (GDP) growth forecast in Germany from 0.4 to 0.3 percent for this year and from 1.2 to 1.1 percent for next year. . The bank increased its GDP forecast for 2026 from 1.3 percent to 1.4 percent.
The report emphasized that the German economy was slowly recovering after a period of weakness that lasted nearly two years, and commented, “Not only will private consumption gradually recover, but also exports will recover again starting from the second half of the year.”
Bank raises inflation forecast
The Bundesbank report stated that energy and food prices are expected to drop significantly this year and underlined that inflation will continue to be stubborn, especially in the service sector.
The Bundesbank, which predicted 2.7 percent inflation for this year in December 2023, increased the said rate to 2.8 percent in its latest report. While the bank increased its 2024 inflation forecast from 2.5 to 2.7 percent, it kept its 2025 inflation expectation constant at 2.2.
The Bundesbank report stated that inflation in Germany is stubborn due to the ongoing strong increase in wages, and added: “Inflation in the service sector continues to be stubborn. Sharply increasing wages and the resulting cost pressures play an important role in this.”
“As the ECB Governing Council, we do not act on automatic pilot”
In his assessment of the issue, Bundesbank President Joachim Nagel said, “The German economy is recovering from a period of weakness.” he said.
Nagel stated that Germans benefit from sharply rising wages, gradually falling inflation and a stable labor market, and said that inflation in Germany continues to fall, but at a moderate pace.
Following the interest rate cut decided by the ECB Council yesterday, Nagel continued his “cautious” approach towards further reductions in interest rates in the coming months and said, “As the ECB Governing Council, we do not act on automatic pilot regarding interest rate cuts.”
The German economy narrowly avoided entering a technical recession by recording 0.2 percent growth in the first quarter of the year, after a 2-year recession.
The country’s economy remains fragile, particularly due to persistent weakness in the manufacturing sector, which plays a larger role than other countries in the region.