German Bundesbank Says German Economy May Contract in 4Q, Inflation over 4% Next Months
20 December 2021
By David Barwick – FRANKFURT (Econostream) – The German economy could contract in the current quarter, while consumer price inflation would exceed 4% in the next months, the German Bundesbank said on Monday in its latest monthly report.
‘Economic output in Germany could decline somewhat in the autumn quarter of 2021’, the German central bank wrote, noting the latest worsening of the pandemic and the negative implications for services.
‘However, the decline in turnover is likely to be less than in the fourth quarter of 2020, as the measures have been less stringent overall so far and also only affect a smaller part of the quarter’, it continued.
Supply constraints are also hindering manufacturing output, the Bundesbank said. Although industrial production in general and motor vehicle production in particular posted a strong expansion in October, it said, ‘the share of industrial companies that saw their production hampered by these bottlenecks was only slightly below September's record high in November.’
The construction sector was assessed positively, in contrast to trade and services.
‘The current worsening of the situation regarding infections has not yet made itself felt on the labour market’, the Bundesbank said. ‘As in recent months, it nevertheless recovered only moderately due to the continuing supply bottlenecks.’
Unemployment would probably decline only slightly in the short term, it said.
A statistical effect that had boosted measured German inflation would disappear as of the current month, and the base effect from Germany’s pandemic-related VAT adjustments would also disappear next month, the Bundesbank observed.
‘In principle, however, inflation rates are expected to remain clearly above average at more than 4% in the coming months’, the central bank said. ‘Among other things, the steep rise in market prices for natural gas will contribute to this, which should be noticeably reflected in retail tariffs at the beginning of the new year.’
Only three 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.’