The German central bank or Bundesbank has commented on the current state of the country’s economy, noting that it is in a phase of weakness. From the banking entity they anticipate that the stagnation suffered during the second quarter will continue during the third.
The Bundesbank’s August bulletin, which was published this Monday, states that during the first quarter of the year the country’s gross domestic product (GDP) contracted, and that it remained stagnant at those levels below the figures with which it closed 2022. during the second trimester.
The Bundesbank economists have assessed what have been the main threats to the German economy and what has caused this stagnation, and have concluded that “weak foreign demand and rising financing costs are weighing down the economy.”
Backorders keep the industry going
However, the cushion of orders in industry and construction, as well as bottlenecks in supplies prevent a weaker evolution of the German economy, which in turn has a wind in favor of the strong labor market.
In addition, private consumption also boosts the German economy in the summer quarter, but it will not prevent it from stagnating. “Due to strong employment and wage increases at a time when inflation rates are falling, the stable recovery in private consumption could continue,” which will boost the service sector, the Bundesbank economists add.
But weak industrial production is holding the economy back and could weigh on it in the third quarter. The Bundesbank notes that demand for industrial products remains low.
“Industrial order intake rose in the second quarter a little from the previous one but this was only due to the large orders, which are mainly worked for a longer period of time,” according to Germany’s central bank.
Without these large orders, internal and external demand had fallen sharply. The companies’ short-term production and export plans point to a weakening of German industry.
However, the fall in bottlenecks and the fact that companies have a cushion of high pending orders have a positive effect on industrial production.
Despite the stagnation of the economy, the German labor market is robust, employment will remain stable in the coming months and unemployment will break a bit. Consumer prices rose sharply in the spring, especially for foods such as cereals, beverages, non-energy industrial goods, and services. Energy prices fell, although not as much as at the beginning of the year.
Inflation eased in the second quarter to 6.9%, from 8.8% a year earlier, when energy prices had risen sharply from Russia’s invasion of Ukraine and now have this effect. But food prices rose 14% from the second quarter of last year.
The Bundesbank expects inflation to fall further in the autumn due to falling energy prices. The strong increase in wages in 2023 is a fundamental factor why the increase will exceed 2% for quite some time.
