Bundesbank: German Economy to Stabilise Somewhat in 3Q

22 July 2024

By Isabel Teles – FRANKFURT (Econostream) – The German economy's recent downward trend is likely to give way to stabilisation in the third quarter, after having grown less than expected in the spring, the German Bundesbank said on Monday in its latest monthly report.

‘The economy should stabilise somewhat in the third quarter. Private consumption is likely to pick up slightly. In particular, the favourable conditions of sharply rising wages, declining inflation and a robust labour market should contribute to this’, the Bundesbank said.

According to the report, the industrial economy was likely to improve hesitantly, for which reason GDP growth in the third quarter would probably fall slightly short of the expectations from the Bundesbank's June forecast.

In the second quarter, German GDP rose only moderately, undershooting expectations, mostly due to a weak performance by the industry, the report noted.

‘Industrial production fell significantly and the signs of stabilisation in incoming orders that emerged with the strong increase in orders in April weakened noticeably. Industry is therefore likely to have slowed down the economy in the second quarter’, the Bundesbank said.

High financing costs continued to dampen investment and the domestic demand for industrial products, while private consumption supported demand for services, the report said.

In June, underlying annual inflation in Germany fell to 2.5% from 2.8% in May, while core inflation remained significantly higher, falling from 3.5% in May to 3.3% in June.

Inflation in Germany was expected to fluctuate in the coming months, but was ‘unlikely to fall any further’, according to the Bundesbank.

‘This is also due to the high volatility of oil prices last year, the impact of which is now being reflected as a base effect in consumer prices’, the report said. ‘Inflation in services is likely to ease only hesitantly in the coming months given that wage growth remains strong.’