The latest monthly report from Bundesbank presents a mixed outlook for the German economy, highlighting persistently high inflation and a slow yet expected recovery.
According to the report, headline inflation at 3.0% and core inflation at 4.2% are “still well above historical average.” The Bundesbank anticipates that the inflation rate is “likely to fluctuate around its current value in the coming months,” indicating ongoing price stability concerns.
The report forecasts that a slight economic recovery is “only expected after the turn of the year”. This recovery is expected to be driven by an increase in real net income of private households, buoyed by significant wage hikes a reduction in price pressures. Despite anticipated cautious approach to spending by private households, there is expectation of gradual expansion in real consumption, which could bolster domestic economy.
The industrial sector, however, continues to face challenging conditions. The Bundesbank’s report points to weak foreign demand and the lingering effects of previous energy price shocks as factors hampering production. Yet, there are initial signs of improvement on the horizon. The report notes that the basic trend in incoming orders suggests a potential stabilization in foreign demand.