‘Overall, economic output is likely to expand only slightly. This means that the expected slow recovery of the economy will be further delayed’, the Bundesbank said.  

Nonetheless, the German central bank ruled out a recession. 

‘From today's perspective, however, a recession in the sense of a significant, broad-based and prolonged decline in economic output is not to be expected as long as no new negative shocks occur’, the Bundesbank said. 

Private consumption and services were likely to provide some support to the German economy ahead, but weak industrial performance should continue to dampen overall activity, according to the report. 

‘At the start of the third quarter, short-term export expectations and production plans were also below the previous quarter, indicating that the industrial weak phase is continuing’, the Bundesbank said.  

The German labour market remained stable in the second quarter, the Bundesbank said, and moderation in the number of jobs available should continue.  

According to the report, wage demands were likely to remain high in the upcoming negotiations, with a focus on permanent increases.   

‘Given that the inflation compensation premiums are only tax-free until the end of 2024, the unions are now focusing on permanent wage increases’, the Bundesbank said. ‘The high willingness to strike that has been going on until recently and the still widespread shortage of labour speak in favor of comparatively high wage increases in the future.’ 

The disinflation process continued to slow down in Germany, the report confirmed, though slightly higher inflation could be expected in the near term.    

‘From today's perspective, we can expect somewhat higher inflation rates again temporarily towards the end of the year’, the Bundesbank said. ‘Core inflation is also likely to remain at an elevated level due to the continued strong wage pressure.’