Bundesbank sees gloomy economy for German’s Q3

 

BERLIN – Germany’s central bank foresees a worsening state of the country’s economy in the coming months, pointing to consumer restraint and weak industrial output as main issues.

“German economic output is likely to contract somewhat in the third quarter of 2023,” the Bundesbank wrote in its monthly report published on Monday.

The recovery of consumer spending is likely to be delayed in view of stubbornly high inflation, the bank said.

“Noticeable positive impulses from private consumption are hardly to be expected. Despite the somewhat weakening price increase, the strong wage growth and the good labour market situation, private households are still holding back on spending,” it said.

In August, Germany’s annual inflation rate of 6.1% was only slightly lower than in July. The harmonized consumer price index (HICP), which the European Central Bank (ECB) uses for its monetary policy, stood at 6.4% in Europe’s largest economy in August.

The Bundesbank expects both the overall HICP rate and the core rate – i.e. inflation excluding prices for energy and food, which are prone to fluctuation – to continue to fall in Germany in the coming months.

“Nevertheless, against the background of robust wage growth, the inflation rate is likely to remain well above 1% in the medium term,” the Bundesbank wrote.

Significantly higher energy and commodity prices are also causing problems for industry in Germany. “In addition to consumer restraint, the intensifying weakness of industry is also depressing economic performance.”

“The low and further declining order intake as well as the decreasing order backlogs are increasingly reflected in industrial production.”