The economic outlook for Germany improved slightly after a better-than-expected contraction in the fourth quarter. Inflation also appears to have peaked, says the German Bundesbank in its monthly economic report. It is expected that it will take some time for prices to really start falling.
The German economy contracted by 0.2% in the fourth quarter compared to the third quarter. In the last quarter of 2022, the largest economy in the Eurozone had to contend, among other things, with a drop in consumption, after three quarters of growth. However, thanks to a mild winter, lower energy prices and surprisingly resilient business confidence, the downturn has remained limited.
The short-term outlook is currently more favorable than it was a few months ago. The economy of the important trading partner of the Netherlands was also supported by a strong labor market and improving global conditions. Towards the end of the year, business and consumer sentiment around the world improved slightly, while fears of a recession eased slightly, the Bundesbank said, also indicating the absence of a major energy crisis in Europe.
Wages
The Bundesbank has warned that rapid wage increases will trigger a second wave of inflation, meaning it will take longer for headline inflation to ease. “Wage growth will help keep inflation in the euro area well above the 2% target for an extended period of time.”
Despite the inflation, the Bundesbank said the economy could still do “slightly better” than its forecast of a 0.5% contraction this year, published in December. Germany is expected to enter a recession this quarter. The situation will gradually improve over the course of the year, according to the Bundesbank, but there is no ‘significant improvement’ in sight. The European Commission is more positive on the German economy and expects a small growth of 0.2% for this year.
Source: BNR
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