German Bundesbank Sees German Economy Treading Water in 3Q, Inflation over 3% for Some Time

22 November, 2021

By David Barwick – FRANKFURT (Econostream) – The German economy is likely to put growth on hold for the moment, while consumer price inflation would remain above 3% for months to come, the German Bundesbank said on Monday in its latest monthly report.

‘The economic recovery will probably take a breather for the time being’, the German central bank wrote. ‘From today's perspective, GDP could roughly tread water in the autumn quarter of 2021, after economic output had already stopped growing in the course of the summer quarter.’

The growth impulse from services had ‘probably largely petered out for the time being’, the Bundesbank said, noting that some pandemic containment measures had been reinstated.

Meanwhile, industry would drag down total growth in 4Q, the report said. While demand is still strong, supply constraints outweigh these, it said, citing an Ifo Institute survey of companies according to which the constraints would ease ‘only in the course of the coming year.’

Construction would help growth despite ‘an increasing shortage of labour in this sector in particular’, the report said.

‘With the exception of the construction sector, business expectations have deteriorated noticeably across the board’, the Bundesbank said, in part due to fears of a renewed pandemic, even if the impact of this would be less than that of previous waves.

‘The extraordinarily high order backlogs in industry and construction suggest considerable catch-up effects as soon as supply bottlenecks ease noticeably’, the Bundesbank said.

Labour market improvement continued at a slower rate in 3Q, and ‘it is not expected that the situation on the labour market will continue to improve to this extent in the coming months’, according to the Bundesbank.

However, it said, collective wage agreements up for renewal soon would probably yield stronger wage increases.

As for inflation, the growth of consumer prices would decline gradually from early next year, but ‘could remain well above 3% for some time’, the Bundesbank said. ‘Values considerably above 2 % are conceivable for the core rate.’

Only two months ago, the Bundesbank had said that ‘[a]t the beginning of 2022, inflation should ease noticeably, but still remain above 2% until the middle of the year.’