Europe's biggest economy contracted by 0.4% in the final quarter of 2022 and its vast industrial sector is just starting to recover while high inflation is weighing heavily on consumption. "German economic activity will probably fall again in the current quarter," the Bundesbank said. "However, the decline is likely to be less than in the final quarter of 2022." While a recession - two consecutive quarters of negative growth - remains the most likely outcome, the labour market is proving resilient and the central bank said it expects continued positive developments for employment.
The European Central Bank has raised interest rates by 350 basis points since July, the fastest pace on record, to tame runaway inflation but price growth could still hold above its 2% target through 2025.
Overall inflation in Germany is likely to tumble in March as
high energy prices get knocked out of year earlier figures, even
if price growth will remain uncomfortably high.
"That being said, the core rate is proving exceptionally
persistent," the bank said. "It could even increase slightly
towards the middle of the year."
Euro zone core inflation, which excludes volatile food and
fuel prices, has been inching up even as the overall inflation
rate falls, as high energy prices of the past year are seeping
into the other costs and wages.
(Reporting by Balazs Koranyi; Editing by Angus MacSwan)
