FRANKFURT (Reuters) – Germany’s economy is expected to contract in the first quarter and high core inflation will persist although overall price inflation is expected to slow markedly soon, the Bundesbank said in its monthly report on Monday.
Germany’s gross domestic product fell by 0.4% in the last three months of 2022.
Its large industrial sector is just beginning to recover while high inflation is weighing heavily on consumption.
“German economic activity is expected to decline again in the current quarter,” the German central bank said. “However, the decline is expected to be less significant than in the last quarter of 2022.
While a recession – two consecutive quarters of GDP contraction – remains the most likely outcome, the labor market is proving solid and employment should see positive developments, according to the Bundesbank.
The European Central Bank has raised interest rates by 350 basis points since July to rein in record inflation, but the consumer price index could hold above its 2% target until 2025 .
Headline inflation in Germany should fall back in March, but the rise in core inflation, excluding volatile items such as food or energy, could accelerate towards mid-year.
(Balazs Koranyi, French version Laetitia Volga, edited by Kate Entringer)
Copyright © 2023 Thomson Reuters