By Jörn Bender, dpa l Monday, February 20, 2023
BERLIN – The German economy has shrunk further in the first months of 2023, the country’s central bank reported on Monday, predicting that Europe’s largest economy is headed for a recession.
“Economic output in the first quarter of 2023 is likely to be lower than in the previous quarter once again,” the Bundesbank wrote in its monthly report.
If gross domestic product (GDP) falls for two quarters in a row, economists speak of a technical recession. The German economy contracted in the fourth quarter of 2022. The Bundesbank’s economists noted on the one hand that tensions on the energy markets and associated uncertainty had eased considerably.
Government-mandated electricity and gas price brakes were mitigating the rise in energy costs for private households and companies, they said, with investments and industrial production set to benefit from this.
“On the other hand, industrial production entered 2023 at a depressed level after the significant decline in December 2022,” the Bundesbank said. “This is also true for exports, which are further dampened by slowing external demand.”
Private consumption is suffering from inflation, which is reducing households’ purchasing power, it added. Construction activity is expected to cool further.
“Things could slowly pick up again in the further course of the year,” the Bundesbank predicted, while warning that “a significant improvement is not yet in sight.”
All in all, German economic output is likely to decline slightly on average in 2023, according to the Bundesbank, but is expected to do a little better than the 0.5% decline in GDP predicted in December.
Meanwhile, houses and flats in Germany remain overpriced despite a recent fall in prices, the Bundesbank wrote.
“The overvaluations for residential real estate did not decline on average in 2022,” the Bundesbank noted in its report, finding that property prices in cities were between 25% and 40% above what they should be according to socio-demographic and economic fundamentals.
Prices declined in the second half of 2022, when inflation and rising mortgage rates were making it harder for many prospective buyers, leading to a slackening off in housing demand.
At the same time however, increased construction prices and housing shortages kept prices high, especially in densely populated areas.
However, the Bundesbank said there were signs that the upswing of the last few years was over. The central bank has been warning for years about overvaluations in the real estate market.
According to analyses, last year’s price increases were lower than in 2021. In Germany as a whole, prices for houses and flats rose by 9% last year, according to calculations by the Association of German Mortgage Lenders.
Prices for residential property in 127 German cities increased by an annual average of 6%, according to calculations by the data provider Bulwiengesa.