Germany’s economy may shrink slightly in 2023 as companies and households start the year on a weak footing, according to the Bundesbank.
(Bloomberg) — Germany’s economy may shrink slightly in 2023 as companies and households start the year on a weak footing, according to the Bundesbank.
Even as the energy crisis and manufacturing bottlenecks ease, exports are subdued by softer global demand, inflation is weighing on consumption and momentum in the construction sector is cooling, the central bank said in its monthly report.
The economy may still fare “a little better” compared with the Bundesbank’s December prediction for a 0.5% contraction this year. Output already slipped 0.2% in the final quarter of last year.
After another decline in the first three months of 2023 pushes the country into recession, “things could slowly pick up in the course of the year,” according to the report. “However, there’s no significant improvement in sight.”
The forecast is more pessimistic than one from the European Commission last week, which predicted Germany will eke out 0.2% growth in 2023.
Confidence in Europe’s largest economy has improved from historically low levels in recent months thanks to unusually warm winter weather and well-filled gas storage facilities. But inflation remains an issue as higher costs continue to filter through to consumers.
While the headline rate of price growth will fall following the recent plunge in energy costs, underlying pressures are expected to ease only slowly in the coming months, according to the Bundesbank.
It warned that stronger wage deals will keep inflation elevated for some time.
“Noticeable second-round effects on prices can be expected,” according to the report. “They’ll help keep the inflation rate above the 2% target for the euro area for a longer period of time.”
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