Bundesbank: German economy's recovery will be delayed

The German economy will continue its weak performance for the time being, the Bundesbank said on Friday.

Germany slipped into recession last year with adjusted gross domestic product (GDP) falling by 0.3% compared to the previous year. According to estimates, GDP also shrank by 0.3% in the final quarter of 2023 compared to the previous quarter.

“All in all, German economic output could stagnate at best in the first quarter of 2024,” the German central bank said in its monthly report for January.

“Overall, the economy is currently slightly weaker than expected in the December projection. Signs that foreign industrial demand had already reached its low point were not confirmed,” it stated.

In its forecast published in mid-December, the Bundesbank had predicted economic growth of 0.4% for Germany in 2024 after the fall in 2023. In the medium term, the Bundesbank expects slightly stronger growth of 1.2% in 2025 and 1.3% in 2026.

The Bundesbank cited the further decline in foreign orders for German industry as one of the reasons for the decline in the fourth quarter of 2023.

Higher financing costs have also dampened investment, particularly in residential construction.

“Uncertainty about the future direction of fiscal and climate policy is also likely to have weighed on economic activity,” the Bundesbank added.

Consumers remain cautious and were unlikely to have increased their spending, it said. However, consumers can hope for some relief with the Bundesbank stating the inflation rate is likely to soon “fall noticeably again.”

In December, consumer prices rose by 3.7% compared to the same month in the previous year, following an increase of 3.2% in November.