Bundesbank: German economy will contract in the third quarter

The German Central Bank (Bundesbank) reported that the German economy is expected to contract in the third quarter due to weakness in industry and sluggish private consumption.

The Bundesbank economic report for September has been published. The report states that the latest economic data does not bode much hope for the German economy in the short term and that there was no recovery in the economy in the summer quarter (July-September).

The Bundesbank report stated that “despite the slight slowdown in price growth, strong wage increases and the good situation on the labor market, households continue to restrict their spending,” and also highlighted that the increasing weakness of The industry puts pressure on economic growth.

“The continued low decline in incoming orders, as well as the decline in backorders, are having an increasingly significant impact on industry production,” the report says. “Germany’s economic output is expected to contract slightly in the third quarter of 2023,” he said.

The report notes that significant decreases in raw material levels, such as import, production and wholesale prices, are likely to gradually be reflected in consumers and assesses that “however, despite the strong wage increase, it is the inflation rate is likely to be well above 2 percent in the medium term.

WARNING ABOUT DEPENDENCY ON CHINA

The Bundesbank report underlines that the German economy also has problems in foreign trade and that German industry, which is largely export-based, depends on intermediate products from China.

The report states that companies with the highest sales are especially dependent on intermediate goods from China and says: “Given rising geopolitical tensions and related risks, companies and politicians must rethink the developing trade structure.”

Meanwhile, the German economy has failed to grow for three consecutive quarters due to rising interest rates, a weak global economy and high inflation. While the economy contracted 0.4 percent in the final quarter of last year and 0.1 percent in the first quarter of the year, it failed to grow in the second quarter of the year.

For this year, the Ifo expects a contraction of the German economy of 0.4 percent and the Kiel Institute for the World Economy (IfW) expects a contraction of 0.5 percent.

According to International Monetary Fund (IMF) forecasts, Germany will be the only G7 country expected to contract this year. (AA)