The German economy is likely to contract again in the current quarter, but improvement could begin in early 2024, albeit at a slow pace, the Bundesbank indicated in the latest edition of its monthly economic report, published today, November 20. At the same time, the report noted that a significant weakening of inflation in Germany is not expected in the near future.
“Inflation is likely to fluctuate around its current level in the coming months,” the German central bank said in its monthly report. In October, the so-called harmonized index of consumer prices (HICP), used by the European Central Bank for its monetary policy, fell to 3.0% in Germany after 4.3% in September and 6.4% in August.
Germany, hit by a deep industrial recession, has been among Europe’s weakest economies this year due to high energy prices, weak global orders and higher interest rates. According to the Bundesbank, the upward trend in prices for food and other goods continues to slow.
“In contrast, relatively high increases in service prices coupled with strong wage growth are likely to persist for some time,” – noted in the document.
The Bundesbank does not rule out inflation rising above 4% in December. Last December, a one-time subsidy for gas and district heating consumers reduced price increases. This effect no longer applies this year; on the other hand, it serves as a low base for comparison this year. According to the German Central Bank, the German economy will likely have difficulty recovering from the weakening phase since the start of the conflict in Ukraine. Experts expect economic indicators to decline slightly again in the fourth quarter.
Germany has only seen one quarter of economic growth this year and will be mostly negative in the final three months of the year. Gross domestic product shrank 0.1% in the third quarter from the previous quarter, according to preliminary data from the federal statistics office. Economists and the German government also expect a slight decline throughout 2023.