Bundesbank Sees German Economy Gaining Momentum in Coming Years

(Bloomberg) — The Bundesbank expects the German economy to slowly gain momentum in 2024 followed by stronger growth in the years ahead, according to fresh forecasts published Friday.

Real gross domestic product will increase by 0.3% this year, it said, slightly tweaking its December forecast of 0.4%. Output growth will then accelerate, expanding 1.1% in 2025 and 1.4% in 2026.

Article content

“The German economy is extricating itself from the period of economic weakness,” Bundesbank President Joachim Nagel said in a statement. “Households are benefiting from strong wage growth, a gradual decline in inflation and a stable labor market.”

The outlook underscores Germany’s rebound from last year’s slump, highlighted in particular by the struggles of its key manufacturing sector. Industrial output unexpectedly fell for a second straight month in April, signaling a weak start to the quarter in Europe’s largest economy.

Still, the labor market has shown itself to be surprisingly resilient and held at 5.9% all year, with companies clinging to workers amid widespread shortages of skilled staff. That means any economic upswing might not be accompanied by a simultaneous boost in hiring as firm instead deploy staff they kept while they had less demand.

The Bundesbank expects private consumption to gradually pick up and export business to improve from the second half of the year. “Against this backdrop, industry will also grow more strongly again,” it said.

Article content

On inflation, which has contributed to Germany’s woes, the Bundesbank lifted its forecast for this year slightly. Consumer-price growth is seen at 2.8% — and 2.7% in 2025 and 2.2% in 2026. Core inflation, which strips out volatile elements like food and energy costs, is expected to slow to 3.1% in 2023 and 2.5% and 2.3% in the following two years.

Nagel warned that the inflation rate is continuing to decline, but at a “subdued” pace.

“We on the ECB Governing Council are not driving on auto-pilot when it comes to interest-rate cuts,” he said.

The Bundesbank published its projections a day after the ECB delivered on its promise to cut rates but left investors querying where policy is headed next by also saying it will take longer for inflation to reach 2%.

Share this article in your social network

source