Germany’s economic production is anticipated to “stagnate” in the third quarter of 2023 after consecutive contractions seen in the first two quarters, Bundesbank said in its monthly report on Monday
“High financing costs will probably continue to weigh on investment. They are also still dampening demand in the construction sector, which is likely to be increasingly reflected in production,” the German bank stated.
Europe’s powerhouse is “still lackluster” and “still experiencing a period of weakness,” it added.
The German government will witness a serious deficit this year as it continues to pour cash into the markets in the form of subsidies to support struggling companies and households that were struck by the sharp increase of energy prices.
Despite the improving supply chains condition, the “industrial output looks set to remain weak”, the report noted, “as foreign demand has been on a downward trend of late”.
But the Bundesbank also highlighted that due to strong employment and wage growth, in addition to slowing inflation, private spending is expected to continue, leading to a boost in the services sector.
In July, the country’s year-on-year inflation rate fell to 6.2 percent as energy prices began to gradually decline.
But inflation is likely to remain above the ECB’s 2 percent target “for longer,” mainly due to wage pressures, the bank continued.
“Wage growth will probably remain strong, even going into the new year,” it said.
Sanctions that were supposed to be a deadly blow to Russia’s economy have turned into a nightmare for Germany, Europe’s largest economy. Rather than subdueing Moscow, they shoved the German industrial complex downhill.
In June, the Eurozone officially announced it had entered a recession. Among the main factors for this financial crisis was the downturn of the bloc’s biggest economies, on top of which was Germany.
Germany’s economy ministry said earlier this month that a sustained economic recovery is unlikely to happen in the near months.
“On the domestic front, the expected cautious recovery in private consumption, services and investment is showing the first signs of hope, which are likely to strengthen as the year progresses,” said the ministry in its monthly report.
German MP Uwe Schulz, a member of the AfD party, warned this month that the country is on a steady path of economic downfall and de-industrialization as a result of Europe’s anti-Russia policies and sanctions.
It was “not surprising that in 2022 the Russian Federation displaced Germany from fifth place in the ranking of the world’s leading economies,” he said.
Further offering dreadful forecasts on the German economy, Stefan Wolf, the head of the Federation of German Employers’ Associations in the Metal and Electrical Engineering Industries (Gesamtmetall), said early August that Germany’s products are no longer competitive in the market.
It has become the “sick man of Europe,” he said.