Bundesbank Sees 2Q German GDP Roughly Stagnant; Inflation Could Rise Again in September

22 July 2022

By David Barwick – FRANKFURT (Econostream) – Germany's economy probably stagnated in the second quarter, the German Bundesbank said on Friday in its latest monthly report.

‘German economic output is likely to have been roughly stagnant in spring 2022’, the central bank said. While the service sector benefitted from the lifting of public health restrictions, other sectors did not fare as well, and household spending was hurt by high inflation and elevated uncertainty concerning energy, it explained.

‘The poor mood of consumers was reflected in sharply lower sales in the retail and motor vehicle trade’, the Bundesbank said.

Construction was held back by supply constraints and insufficient labour, the central bank said, while industry was also impaired by supply problems as well as uncertainty and softer demand. ‘Therefore, it was probably not able to maintain the production level of the winter’, according to the Bundesbank.

Reduced supplies of Russian gas as of mid-June are also a ‘significant burden for companies and private households’, which face ‘drastically’ risen prices, the Bundesbank noted.

‘This also weighs on the outlook’, the central bank said. ‘From today's perspective, GDP growth in the current quarter is likely to be somewhat weaker than expected in the base scenario of the Bundesbank projection from June 2022.’

As for employment, various leading indicators suggest ‘increasingly weaker job growth in the coming months’, it said, and following the June joblessness rise, the coming months could see further increases in unemployment.

‘The inflation rate is likely to remain high in the coming months’, the Bundesbank warned again. ‘It could even rise again in September because the temporary relief measures will no longer apply. However, the further development of the energy commodity markets is very uncertain, especially with regard to natural gas supplies from Russia. The risks for the price outlook are clearly on the upside.’