No all-clear for inflation
Bundesbank significantly lowers growth forecasts
December 15, 2023, 12:51 p.m
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Germany’s economic output is shrinking more than expected this year. According to the Bundesbank’s forecast, growth in the coming year will also be lower than initially expected. There is still no all-clear for inflation either, despite the decline.
The Deutsche Bundesbank has lowered its growth forecasts for Germany for the next two years, but does not expect a recession in 2024. As from the semi-annual macroeconomic forecast As can be seen, inflation is likely to remain higher than the average for the euro area and will even be above the European Central Bank’s (ECB) inflation target of 2 percent in 2026. The Bundesbank predicts that the gross domestic product (GDP) will fall by 0.1 percent this year after price and calendar adjustments, with a minus also being assumed for the fourth quarter. In June she had expected a minus of 0.3 percent. Growth rates of 0.4 (June: 1.2), 1.2 (1.3) and 1.3 percent are forecast for 2024 to 2026.
According to the Bundesbank, it is primarily weak foreign demand that is slowing down industry, private consumption is also showing hesitation and higher financing costs are dampening investments. But the picture soon brightens according to this scenario. “From the beginning of 2024, the German economy is likely to return to an expansion path and gradually pick up speed,” explained Bundesbank President Joachim Nagel.
According to the Bundesbank’s estimates, the economy will benefit in the next few years primarily from expanding foreign sales markets and increasing private consumption. “Due to the stable labor market, sharply rising wages and falling inflation, private households are spending more money on consumption again,” predicted the Bundesbank. “The real incomes of private households are increasing significantly,” said Nagel. Private investments, on the other hand, initially fell and only provided moderate stimulus again in 2026.
The forecast also shows an improvement in inflation: According to the forecast, the inflation rate will be more than halved in 2024 compared to this year. “Inflation in Germany is on the decline, but it is still too early to give the all-clear,” said Nagel at the same time. The Bundesbank expects the Harmonized Index of Consumer Prices (HICP) to rise by 6.1 (6.0) percent in 2023, by 2.7 (3.1) percent in 2024, by 2.5 (2.7) percent in 2025 and 2026 by 2.2 percent.