Bundesbank: German Economy Could Shrink in Q3, Inflation Higher in Coming Months

19 September 2024

By Marta Vilar – MADRID (Econostream) – The German economy will remain weak in Q3, likely registering stagnation or negative growth, and inflation will rise again in coming months, according to the German Bundesbank’s latest monthly report, published on Thursday.

‘The German economy continues to find itself in difficult waters’, the Bundesbank said. ‘Overall, real gross domestic product could be stagnating or declining again in the third quarter from today's perspective.’

A recession in the sense of a ‘significant, broad-based and prolonged declined in economic output’ was, however, not expected by the Bundesbank.

Industrial production remained weak, economic policy uncertainty was weighing on companies’ investment activity and demand for capital goods and construction services was declining due to increased financing costs, according to the German central bank.

The Bundesbank report also highlighted that despite August's decrease in inflation, higher figures were to be expected in the coming months.

‘In September, the inflation rate is likely to be similarly low as in August. This is because energy prices are likely to fall noticeably below the previous year's level for the time being. After that, the inflation rate is expected to pick up again somewhat’, the Bundesbank said.

Moreover, the ‘underlying upward pressure on prices is unlikely to slow down from a high level for the time being due to sharply rising wages’, the central bank said.

Germany's labour market was being gradually affected by the lack of economic stimulus, according to the report. The number of employed persons was currently quite high, but the upward trend had softened lately, it said.