Consumption in Retail (Archive)
Photo: FABIAN BIMMER / REUTERS
The economic crisis in Germany is apparently being extended. "Economic output is likely to shrink somewhat in the third quarter of 2023," according to the Bundesbank's monthly report, which has now been published. This would mean that the growth-free phase of Europe's largest economy would continue again: at the end of 2022 and beginning of 2023, gross domestic product had already shrunk before stagnating in the spring. In August, the Bundesbank had estimated that the economy would largely stagnate in the summer.
One reason for the continuing slump for the quarter running from July to September is the continued weakening of private consumption. "Despite the slight slowdown in price increases, strong wage increases and the good labour market situation, private households are still holding back on spending," the Bundesbank explained. But industry is also recovering more slowly than originally thought: "The low and further decline in incoming orders as well as the declining order backlog are having an increasingly clear impact on industrial production," it said.
Inflation rate at 6.1 percent
The Bundesbank writes that the increased financing costs are also likely to contribute to the weak demand from Germany and abroad. The European Central Bank (ECB) raised its key interest rate to a record level of 4.50 percent last week in the fight against inflation, making loans more expensive and thus slowing down the economy.
In Germany, the inflation rate is currently 6.1 percent. According to the Bundesbank, it is likely to "continue to decline over the course of the year". One reason is the elimination of "base effects" – due to the fuel discount and nine-euro ticket, which were valid in the previous year, expenses were higher in the summer of 2023. However, the significant declines in import, producer and wholesale prices are also likely to be gradually passed on to consumers. "Nevertheless, against the backdrop of robust wage growth, the inflation rate is likely to remain well above two percent in the medium term," the Bundesbank expects.